Banking, interest and tax

Types of Bank Accounts

Banks offer different types of accounts for managing money:

Savings Account: Earns interest on deposited money. Used for short-term savings.
Cheque/Current Account: Allows deposits and withdrawals using an ATM, online banking, or cheques. Used for daily transactions.
Fixed Deposit Account: Requires money to be invested for a fixed period. Offers interest over time.
Credit Account (Credit Card): Allows purchases on credit. The money is paid back later with possible interest.
Debit Account (Debit Card): Directly linked to a bank account. Purchases are deducted immediately. No credit is available.

Bank Statements

A bank statement is a summary of transactions in a bank account, usually sent monthly.

Key Components of a Bank Statement

Date: When the transaction took place.
Description: Details about the transaction.
Amount: The value of the transaction (either debit or credit).
Balance: The remaining money in the account.

Important Terms

Opening and Closing Balance: The amount in the account at the start and end of the period.
Transaction: Any movement of money in or out of the account.
Debit Transaction: Money paid out of the account.
Credit Transaction: Money deposited into the account.

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Worked Example:

1. Understanding a Bank Statement

Key Details from Xola's Statement:

Salary received: R8,000.00
Total debits (expenses): Car insurance, rent, medical aid, cellphone contract, store purchases, car repairs.
Birthday money received: R500.00 (from Mrs S. Khumalo).
Remaining balance (after all transactions): R1,400.50

2. Questions & Solutions

a) How to Identify Debits and Credits

Credits are positive values and appear in the left-hand column.
Debits are negative values and appear in the right-hand column.

b) List of Credits & Debits

Credits:

Salary: R8,000.00
Deposit from Mrs S. Khumalo: R500.00 Debits:
Car insurance: R100.00
Rent: R3,000.00
Medical aid: R500.00
Mobile contract: R250.00
Clothing store purchase: R1,000.00
Shop 'n Save purchase: R2,000.00
Car repair: R1,000.00

c) How Much Money Did Xola Have Before Receiving His Salary?

Balance after salary payment: R8,050.50
Before salary was added:

8,050.50−8,000.00=50.50

Xola had R50.50 in his account before his salary.

d) Identifying the Birthday Deposit

14/02/2013: Payment from Mrs S. Khumalo (R500.00).

e) How Much Would Xola Have Had Without the Birthday Money?

Final balance: R1,400.50
Without the R500.00 gift:

1,400.50−500.00=900.50

Xola would have had R900.50.

f) Saving 15% of the Remaining Balance

15% of R1,400.50:

1,400.50 \times 0.15 = 210.08

Xola can save R210.08.

Banking Fees

Banks charge fees for various services. Common fees include:

Monthly Account Fees: Charged for account maintenance.
Withdrawal Fees: Charged for ATM or over-the-counter cash withdrawals.
Deposit Fees: Fees for depositing money at certain banks.
Electronic Transfers: Costs for online payments or transfers.
Balance Enquiry Fees: Charged for checking account balances at ATMs or branches. Tip: Using electronic banking and ATM withdrawals at your own bank can reduce banking fees.

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Worked Example:

1. Understanding Bank Fees

Key Details from Mia's Transactions:

Total withdrawals in April: 3
Total shopping purchases: R996.80
Total bank fees paid: R29.70

2. Questions & Solutions

a) Number of Withdrawals in April

Mia withdrew cash three times.

b) Total Money Spent on Shopping Purchases

Shoprite purchases: R847.21
Edgars purchase: R149.59
Total spent on shopping:

847.21+149.59=R996.80

c) Calculating Total Bank Fees

Bank charges breakdown:

Returned debit order fee: R4.00
Shoprite cash withdrawal fee: R1.00
Old Mutual debit order payment at branch: R3.00
Capital Bank ATM withdrawal fee: R4.00
FNB ATM withdrawal fee: R7.00
Balance statement fee: R3.00
Monthly admin fee: R4.50
SMS notifications: R3.20 Total bank fees paid:

4.00+1.00+3.00+4.00+7.00+3.00+4.50+3.20=R29.70

d) How Can Mia Reduce Her Banking Fees?

Disable SMS notifications to save on charges.
Withdraw cash at shop tills instead of ATMs to reduce withdrawal fees.
Ensure sufficient funds in her account to avoid debit order return fees.
Use in-bank payment options to avoid third-party ATM fees.

Simple Interest

Simple interest is the interest earned or charged on the original amount (principal) only.

Formula for Simple Interest

A = P(1 + rt)

Where:

A = Final amount
P = Principal (original amount)
r = Interest rate (as a decimal)
t = Time (in years)

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Example Calculation

If R3 500 is invested at 10% per year for 3 years:

Interest = R3 500 × 10% × 3 = R1 050
Total amount = R3 500 + R1 050 = R4 550

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Worked Example:

Scenario:

Cash price of a wall unit: R6,499.99
Hire purchase option:
Deposit: R650
36 instalments of R449 each
Goal: Compare total costs & interest rates.

a) Total Cost if Paying in Instalments

\text{Total cost} = \text{Deposit} + ( \text{Monthly instalments} \times \text{36 months} )

= 650 + (449 \times 36)

=650+16,164=R16,814

b) Interest Amount Paid in Instalments

\text{Interest} = \text{Total paid} - \text{Original price}

=16,814−6,499.99=R10,314.01

c) Interest Rate Calculation

\text{Interest Rate} = \left( \frac{10,314.01}{6,499.99} \right) \times 100

= 176.3\% \text{ over 3 years}

= 58.8\% \text{ per year}

Compound Interest

Compound interest is calculated on the current balance, including previous interest earned.

Formula for Compound Interest

A = P(1 + r)^t

Where:

A = Final amount
P = Principal amount
r = Interest rate (as a decimal)
t = Time (in years)

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Example Calculation

If R16 000 is invested at 16% per annum for 5 years:

Year 1: R16 000 × 1.16 = R18 560
Year 2: R18 560 × 1.16 = R21 529.60
Year 3: R21 529.60 × 1.16 = R24 973.38
Year 4: R24 973.38 × 1.16 = R28 969.52
Year 5: R28 969.52 × 1.16 = R33 605.47 Therefore the personal loan is cheaper.

Loans

A loan is money borrowed that must be repaid with interest over time.

Key Loan Terms

Principal: The original amount borrowed.
Interest Rate: The percentage charged on the loan.
Repayment Period: The number of months or years over which the loan is repaid.
Monthly Instalment: The fixed amount paid each month.

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Worked Example Loan Calculation

Example:

A R16,000 loan repaid over different periods has the following monthly instalments:

24 months: R864 per month
36 months: R643 per month
48 months: R534 per month
60 months: R470 per month

a) Total Repayment Over 24 Months

24 \times R864 = R20,736

b) Total Repayment Over 60 Months

60 \times R470 = R28,200

c) Which Option is Better?

Shorter repayment periods → Lower total repayment (less interest paid).
Longer repayment periods → Higher total repayment (more interest paid).
Best option: Borrow for the shortest possible time to reduce interest costs.

Tip: Shorter loan terms usually result in less interest paid.

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Exam Tips

Understand the different types of bank accounts and their uses.
Know how to read a bank statement and differentiate between debits and credits.
Minimise banking fees by using electronic transactions and your own bank's ATMs.
Be able to calculate both simple and compound interest using the formulas.
Understand how loan repayments work and how interest affects total repayment.

Banking, interest and tax Simplified Revision Notes for NSC Mathematical Literacy

Banking, interest and tax

Types of Bank Accounts

Bank Statements

Key Components of a Bank Statement

Important Terms

Worked Example:

1. Understanding a Bank Statement

2. Questions & Solutions

a) How to Identify Debits and Credits

b) List of Credits & Debits

c) How Much Money Did Xola Have Before Receiving His Salary?

d) Identifying the Birthday Deposit

e) How Much Would Xola Have Had Without the Birthday Money?

f) Saving 15% of the Remaining Balance

Banking Fees

Worked Example:

1. Understanding Bank Fees

2. Questions & Solutions

a) Number of Withdrawals in April

b) Total Money Spent on Shopping Purchases

c) Calculating Total Bank Fees

d) How Can Mia Reduce Her Banking Fees?

Simple Interest

Formula for Simple Interest

Example Calculation

Worked Example:

Scenario:

a) Total Cost if Paying in Instalments

b) Interest Amount Paid in Instalments

c) Interest Rate Calculation

Compound Interest

Formula for Compound Interest

Example Calculation

Loans

Key Loan Terms

Worked Example Loan Calculation

a) Total Repayment Over 24 Months

b) Total Repayment Over 60 Months

c) Which Option is Better?

Exam Tips

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