How money works: banks, interest, inflation and risk

Learn what your bank does with your deposit, work out what interest and inflation do to money over time, and compare any money choice on risk, return and liquidity.

A lot of money advice assumes you already know how interest compounds, why a flat rate loan costs more than its quoted rate suggests, or what inflation does to cash sitting in a savings account. Many adults were never taught any of this. Here you learn what a bank does with your deposit, how to read the true cost of a loan, how to turn a stated return into a real one after inflation, and how to compare money now with money later. Every module ends in a spreadsheet or a worksheet built on your own numbers.

What you'll be able to do

• Map every account you hold with its rate, liquidity and deposit insurance status
• Calculate simple and compound growth, and estimate doubling time with the rule of 72
• Convert a flat rate loan offer into an EIR and a total amount repaid
• Work out the real return on your savings after inflation
• Place a savings or investment option on the risk, return and liquidity triangle
• Use FV, PV, PMT and RATE in a spreadsheet to compare money now with money later
• Run an opportunity cost check on a real decision before you commit to it

Syllabus

Module 1: Know who is holding your money and on what terms

You will learn what a bank does with your deposit, how it earns the interest it pays you, and what SDIC deposit insurance protects. By the end you can say where each of your dollars sits and how safe it is.

• 1.1 Your bank deposit is a loan you made to the bank
• 1.2 How a bank earns the interest it pays you
• 1.3 What SDIC deposit insurance covers and what it does not
• 1.4 Map where your money sits and what protects it

Module 2: Make compound interest work for you

You will learn how simple and compound interest differ, why it matters how often interest is credited, and how to estimate doubling time with the rule of 72. With these you can work out what a sum will grow to.

• 2.1 Simple interest pays on what you put in, compound pays on what you earned
• 2.2 Monthly compounding beats yearly at the same stated rate
• 2.3 Estimate doubling time in your head with the rule of 72
• 2.4 Build a compounding table in a spreadsheet

Module 3: Work out what a loan really costs

The rate a lender advertises is often not what the loan costs. You will learn how APR and EIR differ and why a flat rate loan costs far more than its headline, so you can compare offers on one number.

• 3.1 Advertised rate, APR and EIR are three different numbers
• 3.2 Why a flat rate loan costs nearly double what it looks like
• 3.3 Fees and charges that change the real cost
• 3.4 Calculate the EIR of a flat rate offer with the RATE function

Module 4: See what inflation does to your savings

This module covers what inflation is, how it cuts what a dollar buys, how to turn a nominal return into a real one, and why your own inflation can differ from the headline figure.

• 4.1 Inflation means the same dollar buys less each year
• 4.2 Real return is roughly the nominal return minus inflation
• 4.3 Your personal inflation rate is not the headline number
• 4.4 Work out the real return on your cash

Module 5: Weigh risk, return and liquidity before you choose

Use the trade-off between risk, return and liquidity to place any savings or investment option. You will see what you give up before you put money in.

• 5.1 Every place you put money trades risk, return and liquidity
• 5.2 Risk is about what happens when you need the money
• 5.3 Liquidity: how fast you can get the cash without losing value
• 5.4 Place eight common options on the trade-off triangle

Module 6: Put a price on time with present and future value

Money you hold today is worth more than the same amount later. You will learn to work out future value, present value, payments and rates in a spreadsheet you can reuse for any money decision.

• 6.1 A dollar today is worth more than a dollar in five years
• 6.2 Future value: what a sum or monthly saving grows to
• 6.3 Present value: what a future promise is worth today
• 6.4 Build your time value of money worksheet

Module 7: Make opportunity cost a habit

Before you spend, lend or invest a dollar, ask what else it could do. You will practise this on your own decisions using time value, hours of work and sunk cost thinking.

• 7.1 Every dollar spent is a dollar not doing something else
• 7.2 Price a decision in hours of work and years of growth
• 7.3 Sunk costs are not a reason to keep going
• 7.4 Run three real decisions through an opportunity cost check

Frequently asked questions

How long does the course take?

About seven hours across seven modules, including the spreadsheet exercises. Most people finish in two to three weeks, spending a few hours a week.

Do I need to be good at maths?

No. You only need to be comfortable typing a formula into a spreadsheet. Each calculation is shown step by step, with a worked example you can check your own sheet against.

How is this different from Money Foundations: budget, debt, buffer?

This course covers the mechanics underneath other money topics: interest, inflation, risk and time. Budgeting and emergency funds are taught in Money Foundations, and specific debt products are covered in Credit and debt: scores, cards, loans and BNPL.

Is this financial advice?

No. The course is education only. It shows you how to understand and compare money choices and does not tell you what to buy. For advice on your own situation, speak to a licensed financial adviser.

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