Interest rate calculator for children
Start from the gain your child will find on the Interest line each morning. The rate follows from it, along with a check that it stays inside the app's limits.
Interest in the app is added every day to whatever is sitting in the wallet. On a small balance an ordinary bank rate produces nothing a child can see: $32 at 10% a year earns less than a cent a day, and that is a line a child stops opening.
So the calculation runs backwards. Pick the amount your child should find every morning, and work out the rate that produces it.
Interest here has one job: to show a child that money makes money. For that to register, the daily gain has to be worth 20–30% of the money the child sees in a week, or it disappears among chores and gifts. His savings are still small, so a gain that size takes a rate in the hundreds of percent a year. No bank pays that; on a small balance there is no other way to make the gain visible. The savings will grow, and then the rate comes down.
An example. A child has saved $32 and earns $12 a week from chores. To put +$0.50 on the Interest line every day, the rate has to be 570% a year. Over the first week that comes to $3.67 — roughly a quarter of everything he gets in a week, which is exactly enough for the gain to register next to what the child earns. The rate will have to come down as the savings grow.
— % a year
That is the number to enter in your account settings for a daily gain of —.
- On the first day
- —
- Over the first week
- —
- Interest as a share of his money
- — — out of — a week
This is where earnings come in. Interest pays — over the week, chores pay —, together —, and interest makes up — of that. Change the pay per chore or the number of chores and the rate stays put while the share is recalculated.
A week brings in more than seven daily gains: interest is paid on a balance that keeps growing.
Below the mark. The gain is under 20% of the week's money — it will be lost among chores and gifts, and your child will stop looking at that line. Raise the daily gain.
Above the mark. Interest is paying more than 30% of the week's money and starts competing with the reason to earn. Lower the daily gain.
The share crosses 30% in week —, at a balance of around —. That is the moment to lower the rate: it stayed the same while the balance grew.
The calculation hit the ceiling. The app accepts rates up to 1000% a year, and this gain on this balance needs more than that. Nothing is broken — there is simply too little to pay interest on yet. Raise the starting amount; interest is counted from it.
The minimum rate is enough. There is already so much saved that even 1% a year pays more than you asked for. The conversation to have now is about capital working on its own, not about the rate.
On the free plan the rate is fixed at 10% a year and parents cannot change it. On this balance it pays — a week — — of the week's money.
Start with the gain, not the rate. Pick the amount your child will see on the Interest line each day — large enough to register next to what chores pay. The rate follows from it.
There is nothing to pay interest on. Interest is counted from savings, not from earnings: on a zero balance any rate pays zero. Give your child a starting amount and call it what it is — his first money.
Nothing to compare against. The gain has to register next to what chores pay. Enter how much your child gets per chore and how many chores he does in a week.
Where the rate comes from
Interest in the app is added daily to the current balance: each day the balance is multiplied by the rate and divided by 365. If you know the gain you want to see, the equation runs the other way:
rate = daily gain × 365 ÷ balance × 100
On a $32 balance — the budget of a week-long experiment — a fifty-cent gain needs 570% a year. No real bank pays that. Here it is the price of visibility on a small sum: the same 10% a year on this balance pays 0.88 of a cent a day, which is exactly the line a child stops reading.
Why 20–30%
Interest has to be comparable to what a child earns from chores. Below twenty per cent of the week's money the gain disappears among chores and gifts, and the lesson does not land. Above thirty and money starts arriving faster than work brings it in, which removes the reason to work. There is no scientific threshold here; this is a rule of thumb from practice.
Why the rate has to come down
Interest is paid on a growing balance, so the daily gain grows by itself with no help from you. A rate that started at a quarter of the week's money pays a third within six weeks, and several times the earnings within a year. The calculator shows the week when that happens for the numbers you entered.
There is a second reason to watch the growth. The figures in the app are a parent's promise, and one day your child will ask to cash it in.