Page 189 - digitalliteracy

©Credit Goes Here

Title Goes

9.1 Responsible Borrowing
Here

Most people need to borrow money from time to time, especially to pay for important expen-
ditures such as a new home or an education. The most important thing to understand when
you take out a loan or open a line of credit is how interest works. Sometimes it works in your
favor, such as when you save or invest and earn interest; and sometimes it works against you,
such as when you borrow and have to pay interest.

Understanding Interest: The Beauty
and the Beast of Compounding

We’ll start with earning interest, because people
like to watch their money grow. Interest is a beauti-
ful thing if you are a saver or investor. For example,
when you deposit money in a bank savings account,
the bank lends out your money to other customers
in the form of loans to purchase a car or a boat. That Travellinglight/iStock/Thinkstock
might worry you, but the money deposited in your As an investor, interest works for you.
savings account is insured by the Federal Deposit As a lender, it is the price you pay to
Insurance Corporation, or FDIC, and is safe. In “rent” the money you borrow.

173
© 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

sol82612_09_m09_171-194.indd 173 6/29/16 5:19 PM