Interest questions at Level 2 come in two forms: simple interest (the same amount each year) and compound interest (interest on the interest). Most marks are lost by using the wrong one. This free worksheet works through both, then uses them to compare savings accounts and the true cost of loans.
Free to download, print and share for personal or classroom use. Answers included.
What’s in this worksheet
- Section A – Simple interest (6 marks)
- Section B – Compound interest (14 marks)
- Section C – Comparing accounts and loans (10 marks)
- Revise box with the rules and methods for the topic
- Worked answers for every question
Common mistakes on this topic
From our tutors’ marking and the most recent examiner reports – check your work against these:
- Using simple interest for a compound question – adding 4% of the original amount every year instead of 4% of the growing balance.
- Rounding each year’s balance to the nearest pound and carrying the rounded figure forward. Keep pence (or full accuracy) until the end.
- Forgetting that a depreciation question uses a multiplier below 1 (× 0.85), not × 1.15.
How to use it
- Print the worksheet (or work on screen) and attempt every question without looking at the answers. Give yourself a rough time limit – Level 2 exams are tight.
- Mark your work against the answer page. For maths, check the method as well as the final number; method marks are where most of the marks are.
- Read the ‘common mistakes’ notes below and check whether any of them happened to you. Then redo the questions you got wrong a day later.
Related free resources
- Best Buys and Value for Money Worksheet – Functional Skills Maths Level 2
- Speed, Distance and Time Worksheet – Functional Skills Maths Level 2
- Level 2 Maths Mini Practice Paper 1 – Functional Skills Maths Level 2
- All free Functional Skills Maths Level 2 resources
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is the same amount every year, worked out on the original sum. Compound interest is worked out on the current balance, so it grows a little faster each year because you earn interest on previous interest.
How do you calculate compound interest quickly?
Turn the rate into a multiplier – 4% becomes 1.04 – and raise it to the power of the number of years: £3,000 × 1.04³. For a decrease, use a multiplier below 1: a 15% fall is × 0.85.
Does compound interest always beat simple interest?
Not necessarily. Over short periods a higher simple rate can beat a lower compound rate – in the worksheet, 3.5% simple beats 3.2% compound over three years. Always calculate both.
Want a tutor to mark your work? Not sure where you stand? Take the free 15-minute mini mock test. Ready to get qualified? Our live 10-week Functional Skills Level 2 Maths course runs in small groups with a mock exam included, and the 5-day revision course is there if your exam is close.