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Questions tagged [interest]

for questions that relate to interest. Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets.

92
votes
11answers
10k views

Where can I park my rainy-day / emergency fund? Savings accounts don't generate much interest

Savings accounts don't seem to generate much interest. What other options do I have for my emergency fund?
69
votes
9answers
22k views

How does a bank make money on an interest free secured loan?

I was having a discussion about the ethics of charging interest on a loan, and I was of the position that allowing the charging of interest encourages more loans to be given, and thus contributes to ...
57
votes
10answers
13k views

Why don't bond makers just get loans?

I was just looking at investment opportunities, and I found a number of places offering bonds paying up to 12% interest over two years. My first thought was, I can get a loan from my bank for 5% ...
40
votes
10answers
17k views

Why would anyone buy U.S. Treasury Bills?

From the Treasury Direct website, I saw this Bills: U.S. Treasury Bills are a type of short-term security of one year or less, usually issued at a discount. The discount is the amount the security ...
39
votes
3answers
11k views

Can I take out a loan and invest it at higher interest?

I noticed today that my bank is offering small loans of up to £15000 at 3.3% interest. Meanwhile, services like Zopa and RateSetter are offering over 6% interest on investments in their platforms. I ...
34
votes
7answers
78k views

Why do banks want you to pay off interest before principal?

When you take out a traditional mortgage the first payment you make to a bank pays off mostly interest and then later payments start paying off principal. What is the reason for this? Is it just a ...
32
votes
13answers
9k views

Do I pay a zero % loan before another to clear both loans faster?

I have $11,000 to put toward one of my three loans. I think I should pay off the 0% car loan and then in two months it will be zero and I can apply that $635 to the 2.5 % car loan and pay it down ...
32
votes
11answers
10k views

Should I charge my children interest when they borrow money? [closed]

My children (both male, ages 25, soon to be married, & 32, married) have borrowed money from me and my wife on several occasions. They have yet to pay us back what they borrowed. We have never ...
32
votes
2answers
13k views

Why does my car loan interest go up despite making payments on-time?

In my first payment on 06-17-2016, the principal applied to my balance was $186.76 and the interest was $107.50. As I kept making the payment on-time, the second payment on 07-25-2016 was a bit of a ...
31
votes
8answers
5k views

Paying Off Principal of Home vs. Investing In Mutual Fund

I close on my first home October 21. I've locked in a 4.330% APR on a 30-year fixed conventional mortgage and my payment will be ~$800/month. I've put the required 20% down to avoid paying PMI. ...
30
votes
9answers
11k views

Is asking to pay off principal first a placebo?

Some people say that in order to pay off a loan sooner, you should ask the lender to "apply your payment towards the principal", so that they won't "apply your payment towards the interest". From my ...
28
votes
5answers
6k views

Multiple loans, multiple payers - how to snowball fairly

My brother and I both have a large sum of student loan debt. I have more than he does and my interest rates are slightly larger as well. We are both attempting to snowball our debt separately. It ...
27
votes
7answers
12k views

Why is the fractional-reserve banking not a Ponzi scheme? [closed]

Operating a Ponzi scheme is a crime which I suppose has some sort of definition in the penal code or criminal law. It is a fraudulent investment operation that pays returns to separate investors from ...
26
votes
5answers
2k views

Where should I park my rainy-day / emergency fund?

This is the US companion of the same question for Canadians Where can I park my rainy-day/ emergency fund?. Basically I want to know what options I have for my emergency fund?
24
votes
5answers
38k views

Credit Card Newbie - If I pay off my balance every month, what am I actually paying?

So I have never owned a credit card in my life, and am trying to get ideas as to how they work. Sorry if this is too simple a question... Lets say I have a credit card, and in one month I charge $...
23
votes
4answers
37k views

Daily interest calculation combined with monthly compounding: Why do banks do this, and how-to in Excel?

I often see banks advertise (for accounts with fixed yearly interest, let's say 1.5%) – "interested is calculated daily, and compounded monthly". I have 2 questions: Why are they calculating ...
22
votes
13answers
21k views

Prepaying a loan: Shouldn't the interest be recalculated like a shorter loan?

Maybe I'm incorrect in my thinking, but I have a question about prepaying a loan. When you take out a mortgage on a home or a car loan, it is my understanding that for the first years of payment you ...
21
votes
9answers
7k views

Should I pay off my car loan within the year?

I saw another question like this, but I am in a bit of a different situation. I am 19 years old, in college, and have no credit history. I saved up enough money to buy a car, but decided to get a ...
19
votes
4answers
6k views

Paying Off Student Loans Early

I currently owe $34,558.00 in student loans ($31,000.00 principal + $3,601.83 unpaid interest accrued so far) with an average interest rate of 4.877%. I just started working full time ($70,000 GAI) ...
19
votes
5answers
3k views

Should I buy a house because Mortgage rates are low

Interest rates are pretty low right now and a few of my friends are rushing to buy a house(even though the actual property prices are pretty high.) I was of an opinion that mortgage rates being low is ...
19
votes
6answers
5k views

Can you explain “time value of money” and “compound interest” and provide examples of each?

Can you explain the time value of money concept, including present value and future value? How does compound interest work? Why is compound interest a powerful concept when it comes to borrowing, ...
18
votes
8answers
2k views

Paying Off Debt: When CC Companies Won't Reduce APR

For the past two years I've been living, for the first time, under the weighty, grey cloud of credit card debt. Foolish use of personal credit cards to fund asset purchases for an LLC have resulted in ...
16
votes
4answers
4k views

Do banks give us interest even for the money that we only had briefly in our account?

My father has just deposited ₹95,000 in my savings bank account with Indian Bank that I have to pay as fees to my university. I was thinking of paying the fees 1-2 days later, as I will get interest ...
16
votes
12answers
4k views

Why is paying mortgage interest considered by some to be beneficial?

When discussing buying a home I often hear people say they like having a mortgage because they get the benefit of writing off the interest. Am I misunderstanding something? My simple thought is if ...
16
votes
4answers
10k views

Pros/cons for buying gold vs. saving money in an interest-based account?

Over the years, I have noticed a certain pattern when it comes to money and gold. For example, my father bought a house 30 years ago for $20,000, and today that house is worth $200,000. If my father ...
14
votes
6answers
13k views

Saving $1,000+ per month…what should I do with it?

I am able to save $1,100 a month, after all expenses and after paying the minimums ($225 a month on my 2.24% and 3.25% student loans). I want to make smart decisions with my money, but am not sure ...
13
votes
2answers
5k views

Frequency of investments to maximise returns (and minimise fees)

If I have a certain amount of money to invest regularly, how do I calculate the amount to let accumulate in my bank before I make that investment, assuming there is a fee associated with each ...
12
votes
4answers
2k views

Pros and Cons of Interest Only Loans

I currently have a home with an FHA loan which require me to make mortgage insurance payments for the next 4 years. I am considering a refinance and have came across the idea of interest only ...
12
votes
2answers
18k views

How do I calculate monthly compound interest in Google Sheets?

I have a financial spreadsheet with a column of all my deposits into my savings account. The leftmost column lists the dates of the deposits. Now, let's say my savings balance is $100.00 and my ...
11
votes
4answers
5k views

Why the interest does not stop on the day of paying off the whole loan

We are trying to pay off our 20 years fixed mortgage after 12 years and when I called the mortgage company and asked for the balance (in my calculation is only 57000 of the principal left) the ...
11
votes
3answers
4k views

First time home hunters. Pay debt or save for down payment

tl;dr We want to buy a house. We've done all the pro's and con's of home ownership. We have 1/2 a down payment and some highish loan payments Would it be wiser to pay down the loans and go with ...
11
votes
4answers
27k views

Difference between dividend and interest

A representative at my federal credit union used dividend and interest exchangeably in our communication, claiming the two were the same concept in their financial institution, which doesn't sell ...
11
votes
3answers
2k views

Withdrawing qualified HSA expenses many years later, to earn interest?

Say I have $2000 in my HSA account and have a $1000 medical bill in 2012. If I were to pay the $1000 bill out of pocket and let that $1k left earn interest in my HSA for a significant amount of time (...
11
votes
2answers
591 views

Has anyone found U.S. Savings Bonds to be effective investing?

Since I was a small child, my grandparents have given all of their grandchildren savings bonds on our birthdays. I'm not sure if it makes a difference, but they are always "EE" series. I had to use ...
11
votes
3answers
9k views

Why is the money factor defined the way it is?

In some loan situations, especially car leases, people like to talk about the money factor, which is a number given by interest percentage/2400 Where does the 2400 come from? I understand that it is ...
10
votes
3answers
2k views

How to determine new, lower interest payments after a lump sum mortgage payment, i.e. new amortization schedule?

Here's a financial math problem: I have a mortgage at about $78,0000 with 5.5% interest and 56 of 360 monthly payments were made. I'm currently paying about $360/month in interest charges. If I pay ...
10
votes
6answers
400 views

Entering the stock market in a poor economy

I'm sitting on a reasonable pile of cash, earning negligible interest in a bank savings account. After determining that I can live without this money for 5-10 years, I decided it would be best put ...
10
votes
2answers
565 views

How does Paying credit card in full VS paying with interest will affect your credit score?

What is the effect of paying credit card in full or with interest on your credit score?
10
votes
2answers
2k views

Continuous compounding in practice

A common explanation for the mathematical constant e (2.71828...) is that it is the factor by which an investment would grow at 100% interest rate over a period if it is continuously compounded. In ...
10
votes
1answer
6k views

Why are my auto loan payments calculated differently than my mortgage payments?

Last year I got a home loan that follows the standard Rule of 78s amortization schedule. I can easily predict how much of my mortgage payment will go to interest and how much to principal. A few ...
9
votes
7answers
824 views

Will be debt Free in 3 years — What order should i pay off my cards?

I have budgeted to the point where i can close all credit cards i have in close to three years from now. My question is, should I simply pay 1/3 to each card (will be over minimum payment on all) OR ...
9
votes
3answers
2k views

“Simple interest rate of 0.10%” corresponds to “APY of 2.54%-5.00%”… how?

This checking account says Balances above $5,000 earn a simple interest rate of 0.10%, with a corresponding APY of 2.54%-5.00% APY. I don't understand how a simple interest rate that is a fixed ...
9
votes
4answers
3k views

Shouldn't a Roth IRA accumulate more than 1 cent of interest per month?

Ten months ago, I opened a Roth IRA with an initial principal of $1,000, invested in one of those "Target Date" retirement mutual funds. I also set up $100 automatic monthly contributions. The ...
9
votes
3answers
18k views

Paying a Navient Loan's Principal

I have the following loans: A) $12,818 @ 9.25% B) $11,499 @ 2.25% C) $10,059 @ 2.25% D) $ 3,365 @ 10% I recently received a $5000 inheritance so I would like to allocate this in the best way ...
9
votes
1answer
8k views

If I earned less than $10 in interest from my bank account, do I need to report it on my taxes? [duplicate]

I'm preparing my taxes with Turbotax, and its asking me for all the bank accounts I earned interest from. One of these accounts has earned less than $10 total for the year. Because of that this bank ...
9
votes
2answers
721 views

How does compounding of annual interest work?

I have tried reading up on it, but I just find it confusing. Apparently, if you started investing $150/month at a 15% annual return and kept reinvesting the profits, here is what you would have ...
9
votes
2answers
3k views

Can I save money on interest by paying a loan multiple times per month?

I'm paying off a student loan right now that accrues interest on a daily basis. Last month, for example, I got a bill where the principal was $25k and the interest was $150. I pay about $500 each ...
9
votes
2answers
337 views

How and where can I deposit money to generate future payments / income?

My Question. What do I deposit now, today, to pay myself $300.00 per week,i.e. $15,600.00 annually at 5% interest for 10 years? What kind of or type of financial institution do I deposit the in? A few ...
9
votes
4answers
179 views

Credit Card Transfer/Payoff Advice

I have a credit card that is just about maxed out. I'm trying to get into financial health but the purchase interest charges are killing me and it's hard to get ahead. My cash flow is also terrible ...
8
votes
4answers
3k views

Can you pay off a Credit Card quicker by reducing the daily balance?

If I have x amount on a credit card, let's say $5000. And let's say I make a paycheck of $750. If I take that $750 and put it on the CC, and I do not spend the newly credited $750 immediately (say ...