A credit crunch is a period when lenders are unwilling to provide loans to borrowers. Generally a lender will extend credit to a borrower under the assumption they will be paid back with interest. But when the economy is bad, lenders become hesitant to make loans for fear of losing their money.
Posts Tagged ‘interest’
A Credit Crunch is…
Wednesday, July 27th, 2011An Annuity is…
Tuesday, May 24th, 2011An annuity is a kind of tax-deferred retirement plan, but it’s usually operated through an insurance company. You pay the insurance company a certain amount of money, and in return that company promises to pay you back with interest over a period of time. An annuity is a simple way to save money for retirement without paying taxes on it right away.
You can pay into your annuity all at once (“lump sum”) or in a series of payments. Depending on your contract, an annuity might start paying you back right away or start at a later date – such as when you plan to retire.
Rule of 72?
Tuesday, February 23rd, 2010The Rule of 72 is a simplified method for calculating approximately how long it will take for an investment to double. In order for the rule to work, you have to know the rate of return on the investment, the rate of return has to stay constant, and you can’t add or take away any money from the investment.
The rule is simple: just divide 72 by whatever your rate of return is and you’ll get the number of years it’ll take the investment to double. For example, if your rate of return is 3%, you divide 72 by 3 and get 24. So your investment will double in about 24 years, assuming the rate of return doesn’t change and you leave the investment alone until then.
A Lender is…
Tuesday, October 27th, 2009A lender is any person or business that makes loans. A lender gives a borrower money because the lender expects to be paid back not only the initial amount he or she lent – the principal – but also interest.
Interest is…
Wednesday, September 23rd, 2009Interest is the cost of borrowing money (or a benefit of lending money). When you deposit your money in the bank, the bank is essentially borrowing that money and paying you interest for it. Interest is usually expressed as a percentage per year.
The Rule of 72 is…
Monday, August 10th, 2009The “rule of 72″ is a quick and simple way to figure out approximately how long it will take for an investment to double. You just divide 72 by how much interest you earn on an investment per year – that’s it. So if you put $100 into an account that pays 6% interest, it’ll take 12 years for your principal to double to $200 (72÷6=12).
Simple Interest is…
Sunday, July 5th, 2009Simple interest is interest calculated only on an original investment amount.
Rate of Return is…
Sunday, July 5th, 2009Rate of return is the increase in value of an investment over a period of time – usually a year. So if your annual rate of return is 5%, your investment will increase by 5% every year (from $10,000 to $10,500, for example).
A Loan is…
Wednesday, June 17th, 2009A loan is an agreement between two people where you lend money or property to someone with the understanding that it will be paid back at a later date (usually with interest). People generally take out loans so they can afford large purchases – such as a house or car – or to start a business. On the other hand, people make loans as a way to earn interest on their capital (or extra funds on hand).
How does a bank make money?
Friday, June 12th, 2009Once you deposit your money in a bank, it doesn’t just sit in a big vault until you decide to hit the ATM. Your bank uses those funds to offer financial products (such as loans and mortgages) to their customers, for a profit to the bank. Although banks often pay you interest for depositing your money with them, they find ways to earn more with your money than they are paying you. An example of this would be mortgages, where they lend money to a consumer for a relatively higher interest rate.
Banks also make a lot of money on the fees they charge their customers. Examples of these would be: late fees, overdraft fees, ATM fees, interest rates on credit cards, or checking account fees.
The combination of interest rates and fees allows a bank to run profitable businesses while also offering services to its clients.