Simple Interest Formula

Earnings on the Internet dollars at interest, Monthly Schedule

Investment Calculator Average Return Calculator ROI Calculator Interest is the compensation paid by the borrower to the lender for the use of money as a percent, or an amount.

The concept of interest is the backbone behind most financial instruments in the world. While interest is earned, it is different from profit in that it is received by a lender as opposed to the owner of an asset or investment, though interest can be part of profit on an investment.

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There are two distinct methods of accumulating interest, categorized into simple interest or compound interest. Simple Interest The following is a basic example of how interest works. He would simply be charged the interest rate twice, once at the end of each year.

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Even when people use the everyday word 'interest', they are usually referring to earnings on the Internet dollars at interest that compounds. For the first year, we calculate interest as usual. This is because interest is also earned on interest.

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The more frequently interest is compounded within a time period, the higher the interest will be earned on an original principal. There is little difference during the beginning between all frequencies, but over time they slowly start to diverge.

This is the power of compound interest everyone likes to talk about, illustrated in a concise graph. Continuous compound will always have the highest return, due to its use of the mathematical limit of the frequency of compounding that can occur within a specified time period. The Rule of 72 Anyone who wants to estimate compound interest in their head may find the rule of 72 very useful.

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Not for exact calculations as given by financial calculators, but to get ideas for ballpark figures. It states that in order to find the number of years n required to double a certain amount of money with any interest rate, simply divide 72 by that same rate.

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Fixed vs. Floating Interest Rate The interest rate of a loan or savings can be "fixed" or "floating". Floating rate loans or savings are normally based on some reference rate, such as the U.

Normally, the loan rate is a little higher and the savings rate is a little lower than the reference rate. The difference goes to the profit of the bank. LIBOR is a commercial rate calculated from prevailing interest rates between highly credit-worthy institutions.

Interest Calculator

Our Interest Calculator deals with fixed interest rates only. Contributions An important distinction to make regarding contributions are whether they occur at the beginning or end of compounding periods.

Periodic payments that occur at the end have one less interest period total per contribution. Tax Rate Some forms of interest income are subject to taxes, including bonds, savings, and certificate of deposits CDs.

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In the United States, corporate bonds are almost always taxed. Certain types are fully taxed while others are partially taxed; for example, while interest earned on U.

Taxes can have very big impacts on the end balance. Inflation Rate Inflation is defined as an increase in the general level of prices, where a fixed amount of money will relatively afford less. Please refer to our Inflation Calculator for more detailed information about inflation.

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Leave the inflation rate at 0 for quick, generalized results. But for real and accurate numbers, it is possible to input figures in order to account for inflation. Tax and inflation combined makes it hard to grow the real value of money.

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