Meaning Of Simple Interest And Compound Interest

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Meaning of simple interest and compound interest. Interest is defined as the cost of borrowing money or the rate paid on a deposit to an investor. Conversely when people take a loan or mortgage they pay interest to the bank in most cases this is compound interest which means the interest is paid not only on the amount of the original deposit but also on any accrued. Generally simple interest paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent.

Simple interest is an easy and simple tool for estimation of the interest earned or paid on a given principal amount for a given time frame. For example say a student obtains a simple interest loan. Interest on interest it is the result of reinvesting interest so that interest in the next period.

Compound interest is the addition of interest to the principal sum of a loan or deposit. Ci 50 000 1 0 10 2 2 5 1 31 444 73 final words. Definition of compound interest.

Thought to have. Find out the differences between simple and compound interest. So simple interest is the sum paid for using the borowed money for a fixed period.

Compound interest is calculated based on the principal interest rate and the time period involved it is the addition of interest to the sum of amount or principal amount i e. When people invest their money the bank pays them interest because the bank has in effect borrowed money from the depositor. Interest is a fee for borrowing money.

Try our simple interest calculator and compound interest calculator. Compound interest or compounding interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. Now if the interest rate is calculated half yearly then compound interest will be.