Interest is one of the most powerful forces in personal finance — and it can either grow your money or drain it. Understanding how it works helps you make smarter decisions.
- Interest = extra money added to savings or loans. It’s calculated as a percentage of the amount you save or borrow. The key is knowing whether it’s working for you or against you.
- When you save, interest helps you. The bank pays you a small percentage for keeping your money in a savings or investment account. Over time, your balance grows without extra effort.
- When you borrow, interest costs you. You repay more than you borrowed — sometimes much more. The longer the loan, or the higher the rate, the more expensive it gets.
There are different types of interest:
- Simple interest is calculated only on the original amount.
- Compound interest is calculated on the original plus any interest that’s already been added. This can grow (or cost) much faster.
- Example:
- Save ₦100,000 at 5% annually → earn ₦5,000 per year.
- Borrow ₦100,000 at 24% → repay ₦124,000 or more, depending on terms.
- Interest rates vary. Savings rates are usually lower than loan rates. Always compare rates before committing — even 1% difference matters over time.
👉 Know how interest works, so your money works for you — not against you.