How to Calculate Interest

How to Calculate Interest How to Calculate Interest This is the commerce oriented world and money is the driving force. Therefore it is of utmost importance that we must know the petty calculation and the basics to solve our purpose. The very fundamental calculation we face is during banking like calculating the amount left, interest on the amount occurred, etc. Follow the steps below to find out the interest that you need to pay or the bank will pay you.
Step # 1: Knowing the Basics: The very fundamental step in calculating the interests is to know the basic terms and their meanings.
Principle: It is the basic amount of money that you either deposit or take from the bank as loan. It is on this amount that the interest is calculated.
Simple Interest: It is the extra amount of money that you get with the principle after investing certain time on it.
Amount: It is the sum total of the principal and the interest incurred on it.
Rate of Interest: It is the percent of money you will get extra with the principle per year.
Time Period: It is amount of time for which the principle is kept. Greater is time period; greater is the return you get on the principle.
Compound Interest: Generally the total interest is calculated on the principle that is deposited at the beginning of the first year but there are special cases where the interest is calculated on the amount accumulated at the end of each year. In such cases the interest is called compound interest.
Variable Interest: There are also special cases where the rate of interest is not constant and is different for different time periods. In such cases the interest is called variable interest.
Recurring Deposits: There are many offers and packages provide by the banks where you need to deposit a fixed amount of money at regular intervals and get the whole amount as lump sums. The fixed amount of money paid in those cases is called the recurring deposits.
Fixed Deposits: Fixed deposits are the schemes where you need to deposit a bigger lump of money at once and get double or triple amount of money as return after a fixed number of years.
Break Even: Break Even is the time where the total investment on project is retrieved back. It is the state of no loss and no gain.
Sinking Funds: Sinking funds are the amount of money you need repay at regular intervals in order to repay back a larger sum of money taken from the bank. They are also referred to as the EMI or easy monthly installments.
Step # 2: Calculating Simple Interest:
Simple interest can be calculated by the formula S.I = P * T * R/100, where S.I is the Simple Interest, P is the Principle, T is the time Time Period in years and R is the rate of interest per annum.
Step # 3: Calculating Compound Interest: Compound Interest can be calculated by the formula the formula C.I = P*((1+R/100)^T – 1).
Voila! Now you can calculate interest easily and effectively.