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Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Summer 2006 – Start Smart: Money Management for Teens

Small Payments Can Mean Big Costs When Borrowing

Here's a situation you won't encounter for a few years, but it's never too early to begin learning how credit (borrowing) works. The main message is this: The longer you take to pay back what you owe on a credit card or loan, the more you'll pay the lender in interest charges. In particular, if you use a credit card to make a major purchase and you only pay back a little of what you owe each month, "it will take you a very long time to pay off the balance, and the interest costs can be shocking," according to Janet Kincaid, FDIC Senior Consumer Affairs Officer.

The chart below shows what an expensive purchase will really cost you if you charge it and only pay back the minimum amount due each month, which may be something like $20 or $30. In this example, a $500 stereo would end up costing you about $900 when you figure in the total interest you'd pay, and a $1,000 computer would set you back more than $2,100. If you instead pay back as much as you can each month—the entire balance, if possible—you can really limit interest charges.

Item Purchase Price Years to
Pay Off With Minimum
Monthly Payments
Stereo $500 7 $367 $867
Computer $1,000 13 $1,129 $2,129
Note: Years are rounded to the nearest whole year. These examples assume an interest rate
(Annual Percentage Rate) of 18 percent and a minimum monthly payment of the interest due plus
one percent of the outstanding balance owed.

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Last Updated 12/7/2011