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Interest Rates Interest is the charge the lenders set for the borrowing of their money Interest is done in a percentage like five percent or ten percent So the lender collects their original money along with extra money based on the percentage rate Business governments and consumers borrow money and lend money History Before the 1500s most didnt charge for interest because they believed that charging interest was wrong The Israelites considered lend money without interest a duty that the rich owed to the poor Also during the Middle Ages the church made it a sin to charge interest People were caught charging interest were whipped But in 1545 King Henry of England changed the laws to let interest be used By the 1700 charging interest was considered ok Types of Interest The types of interest are simple compound and discount Simple interest is charged only on the amount borrowed For example if someone borrows one hundred dollars for a year at ten percent interest then that person will have paid ten dollars Compound interest is charged by the amount borrowed and the accumulated interest If you borrow one thousand dollars at ten- percent interest you will be charged one hundred dollars the first year and one hundred and ten dollars the second year 1000 x 10 100 1100 x 10 110 Interest may also be compounded at daily monthly quarterly and semi quarterly Discount interest is charged by subtracting from the principal before the borrower receives the money If someone borrows one thousand dollars at 10 discount rate they would receive nine hundred dollars Also the borrower would have to repay all one thousand dollars And would pay one hundred dollars interest How interest is calculated In the United States savings establishments use interest that is compounded daily The two ways of doing interest is day of depose to day of withdrawal and 2 Day of deposit to
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