How Interest Affects Your Net Worth
If you earn $100 in interest on a savings account and do not spend it, your net worth goes up, not down. The interest is added to your savings balance, increasing your total assets by the same amount. Net worth is assets minus liabilities, so an increase in assets raises net worth.
Why the Statement Is False
The idea that interest lowers net worth is a common misconception. Interest income is a gain, not a loss. As long as the interest remains in the account, it becomes part of your savings and directly increases your net worth. Spending the interest would move the value to consumption, but not earning or keeping it does not reduce your overall wealth.
What This Means for Your Finances
Leaving interest in a savings account allows your balance to grow over time. This effect is even stronger when interest compounds, meaning you earn interest on both your original balance and previously earned interest. To see the impact, you can use a savings calculator at Investopedia.
