Understanding Interest: How Money Can Grow Over Time

When is a good time to start teaching kids about financial concepts? For Piscataqua Savings Bank, the answer is simple: as early as possible.

For families in Portsmouth, New Hampshire and across the Seacoast community, PSB’s Kids’ Bank program gives children a place to start learning about saving, setting goals, and watching their money grow. 

One of the concepts children can begin to understand through their own savings account is interest. It sounds like a complicated financial term, but the basic idea is pretty simple: when you save money in an interest-bearing account, the bank pays you for keeping your money there.

Let’s start with an easy example.

What Does Interest Actually Mean?

When you put money into a savings account, the bank may pay you interest for keeping your money there. It might seem like a small thing, especially when you’re starting with a modest amount, but interest gives your savings an opportunity to grow over time.

For kids, seeing that growth happen in their own account can make the idea of saving feel more real. Imagine depositing money from birthday gifts, an allowance, or a special occasion. Over time, the account could earn interest, allowing the balance to grow without having to deposit those additional dollars yourself.

The amount earned depends on the account’s interest rate, balance, and terms. This introduces an important financial concept: your money can earn money, too. And the earlier children begin learning how that works, the more time they have to develop good financial habits.

Interest Rates: What Should Parents Look For?

If you’re comparing a savings account for kids, you’ll probably come across two terms: interest rate and annual percentage yield (APY).

The interest rate is the rate used to calculate the interest paid on the money you have in your account. The amount earned depends on the balance, the applicable rate, and the account terms. The annual percentage yield (APY) goes a step further. It reflects the total amount of interest you can earn over a year, expressed as a yearly percentage while also taking into account how often that interest is compounded, or added to your account. Because your interest can then earn interest of its own, the APY can give you a better picture of how much your savings could potentially grow over the course of a year.

But when you’re looking for the best savings account for your child, the rate isn’t the only thing worth considering.

Parents may also want to look at:

• Minimum opening deposit: How much does is required to get started?
• Minimum balance: Is there a balance your child needs to maintain?
• Fees: Are there monthly maintenance fees or other charges?
• Accessibility: Can your child easily make deposits and check their balance?
• Financial education: Does the bank offer resources that help kids learn about money?
• Age-appropriate options: Is the account designed to meet children where they are as they grow?

For example, a savings account with a great rate may sound appealing, but an account with no fees, a low opening deposit, and opportunities for a child to participate in their own savings can offer benefits that go well beyond the interest earned.

Before opening an account, review the account’s current rates, fees, and terms to understand which option best fits your child’s needs.

How Compound Interest Helps Savings Grow

Compound interest is interest earned on both the original amount saved and interest that has already been added to the account.

For example, when interest is credited to a savings account and remains there, the balance can increase. Future interest may then be calculated on that larger balance, allowing the savings to grow over time.

The effect becomes more noticeable as the account balance grows. If your child continues adding money along the way, those deposits can earn interest, too. Over time, the combination of regular saving and compound growth can help the balance grow beyond the amount deposited.

The exact amount will depend on the account’s interest rate, APY, how often interest compounds, balance, deposits, and withdrawals. But the bigger lesson for kids is straightforward: the longer you save and the more consistently you add to your savings, the more opportunity your money has to grow.

Starting Early Makes a Difference

For a young child, saving might start with birthday money, an allowance, a gift from a grandparent, or even money from the tooth fairy.

Maybe the first goal is $25. Then it’s $50. Eventually, your child might decide they want to save $1,000 or put money aside for something they’ve had their eye on.

Having a goal can make saving more meaningful because children can see what they’re working toward. They get to experience the small satisfaction of making a deposit, watching their balance increase, and getting closer to something they want.

But the goal itself isn’t really the most important part. The bigger lesson is building the habit of saving.

When children start learning these concepts early, saving can become something that feels familiar rather than intimidating. They learn that money can be set aside instead of spent immediately, that small amounts can add up, and that patience can pay off.

Learning to Save with Piscataqua Savings Bank’s Kids’ Bank

That’s the idea behind Piscataqua Savings Bank’s Kids’ Bank. Located in the heart of Portsmouth, NH, PSB has created a children’s banking program that combines a real savings account with age-appropriate opportunities to learn about money.

Kids’ Bank is divided into three age groups:

Explorers, ages 0–8: Children can open their first savings account and begin learning about regular deposits, the value of money, and healthy savings habits.

Voyagers, ages 9–13: As children become more independent, they can start taking a bigger role in spending and saving decisions, and work toward short- and long-term financial goals.

Navigators, ages 14–18: Teens can add checking to their savings and begin learning about financial responsibilities they’ll soon encounter, including direct deposit, credit cards, loans, and longer-term goals.

Kids’ Bank accounts can be opened with as little as one cent and have no fees, making it easy for children to get started. Kids can also use PSB’s popular coin exchange machine and take advantage of resources designed to make learning about money engaging and hands-on. 

And, of course, there’s the opportunity to watch those savings grow. Rates are subject to change, so families should check PSB’s current rates when opening an account.

Saving Is About More Than the Interest Rate

Interest is an important part of a savings account. Compound interest can help savings grow, and starting early gives that growth more time to happen. But for kids, the most valuable thing happening in a first savings account may be the habit they’re building.

Whether your child is saving $10 toward a small goal or working toward $1,000, each deposit is an opportunity to practice patience, consistency, and planning. Over time, those small lessons can add up to something much bigger: a child who feels confident making decisions about their money.

For families on the Seacoast, Piscataqua Savings Bank’s Kids’ Bank offers a place to start that learning process together.

Learn more about Kids’ Bank at Piscataqua Savings Bank and find the savings option that’s right for your child.

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