My Account
[complete_button module="module_3_complete" label="Mark Module 3 Complete"]

Basics of Interest & Compounding

We discussed the power of compounding earlier; now let’s apply it to a bank setting.

A. Interest (Profit)

  • Definition: The money a bank pays you for keeping your money with them.8 It is calculated as a percentage of your balance.9
  • Shariah-Compliance: Many Pakistani banks offer Profit and Loss Sharing (PLS) accounts, where the return you receive is a share of the bank’s actual profits, making the account Shariah-compliant (non-interest-based).

B. Compounding in Practice

Compounding is when the bank adds the profit earned back to your principal (original) amount.

Scenario

Deposit: Rs. 10,000

Profit Rate: 5% per year

Year 1

Starts with Rs. 10,000. Earns Rs. 500 profit.

New Balance: Rs. 10,500

Year 2

Starts with the new balance of Rs. 10,500.

Earns 5% on Rs. 10,500 (Rs. 525 profit).

Year 10

The money grows exponentially faster.

Total is significantly higher than just Rs. 500 x 10 years.

The key is to always choose an account where your profit is automatically added back to your balance to maximize the compounding effect.

What is money? Cash vs. digital.
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s
Why saving matters

Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s

Inflation explained simply.

Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s

Activity: Make a simple monthly budget.

Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s

What is a bank account? Current vs. savings.

Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s
Mobile wallets in Pakistan (Easypaisa, JazzCash).
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s
Basics of interest & compounding.
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s
Activity: Simulate opening an account.
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s