What it shows
Money in a deposit can earn simple interest, only on the original amount, or compound interest, on the growing total. Tables and graphs for Rs 1,000 over ten years show how the two grow apart.
The science
Simple interest is the principal times the rate times the years divided by 100, and it grows by the same amount each year. Compound interest adds each year’s interest to the principal, so the next year’s interest is earned on a bigger amount. The total is the principal times one plus the rate raised to the number of years, so it grows by a constant percentage rather than a constant amount.
Materials
Cost: free. Many items come from home or from waste; spare parts such as LEDs, motors and wire are in the store.
- A notebook or spreadsheet
- A calculator
- Graph paper in two colours
- A deposit rate from a bank notice, such as 6 percent per year
- A pencil
- A ruler
- A piggy bank for a drawing
Safety
For this project: No real money is invested for this project, and no personal bank details are shared. Do not give financial advice; this is for learning maths only.
Never use mains electricity: power models with cells, batteries or a low-voltage adapter. Sharp and hot tools, flames and lab chemicals need an adult or your teacher beside you. Keep magnets, button cells and small parts away from young children, and wash your hands after making.
All the safety rulesStep by step
7 steps. Do them in order, and test each part before you go on to the next. Write what you notice in a notebook as you go.
Write the principal, say Rs 1,000, and the rate, say 6 percent per year, at the top of the table.
For each year from 1 to 10, calculate the simple interest total using the formula.
Calculate the compound amount year by year by multiplying the previous year’s amount by 1.06.
Write both in two columns and add a third column for the difference.
Plot both on the same graph, with years on the horizontal axis and amount on the vertical axis.
Find the year when the compound amount is double the principal and compare it with the rule of 72.
Repeat for rates of 4 and 8 percent and compare the results.
What you should see
The simple interest line is straight while the compound interest curve bends upward, with the gap growing each year. At 6 percent the money doubles in about twelve years, as the rule of 72 predicts.
Viva questions
A teacher or a judge will ask how it works. Try to answer each question before you open it, then compare.
1What is simple interest?
Interest on the original sum only.
2What is compound interest?
Interest on the sum plus the interest already earned.
3What is the rule of 72?
Years to double is about 72 divided by the rate percent.
4Which grows faster?
Compound, after the first year.
Take it further
Work out the compound amount for interest added half-yearly and monthly and compare.
Change one thing, measure what happens, and add a table or chart of your readings: that is what turns a model into your own investigation.
Free ebooks for this project
Science projects
Science Projects for Class 9 and 10
Models and experiments for high-school physics, chemistry and biology
Science projects
Maths Working Models and Activities
Make maths visible: models for number, geometry, algebra and data
Find out more about maths
Free, well-known places to explore the subject further. Ask a grown-up before you sign up for anything or type your name anywhere.