If the words simple interest and compound interest seem confusing, you are not alone. Investment terms, particularly, interest can be a tricky concept to understand. Both help you multiply your money by adding to your initial value. The only difference is in the way they are calculated.
Savings interest helps you multiply your money and has little to no risk attached to it, making it one of the safest bets to grow your money. Let’s take a look at what they are, how they are calculated, and how a savings interest calculator can make things easier for you.
What is the difference between compound interest and savings interest?
Savings interest is the amount of money that you earn when you invest your money in a financial opportunity. The investment is not always in stock and securities but can also be something as simple as keeping the money in a fixed deposit which also earns you a set interest.
There are two major types of interests you can earn when you invest- simple interest and compound interest. Both are typically expressed as percentages. Compound interest is the process of earning interest on money that has already been earned. This means that you earn not only on the initial investment amount but on the accrued amount (principal amount plus the interest in the last period).
On the other hand, simple interest is the amount that you get after a fixed rate is applied to the original amount. You calculate this by multiplying the initial amount by the time period and the interest rate. A savings calculator is a great way to evaluate your end amount. A savings interest calculator can help you estimate how much you stand to gain. It is a simple tool for even those who are wondering what is investment and have no idea how to begin.
What is a compound interest calculator and how does it work?
Compound interest is a powerful tool that allows people to make their money grow exponentially over time and is a time-tested formula. So, how much should you invest today to grow your money for a comfortable tomorrow? This is where a compound interest calculator comes in.
It is a kind of savings calculator that helps you make better investment decisions. If you have a ballpark figure in mind, it can help you judge the amount of money that you need to invest. This will help you narrow down the opportunities and make the best decision based on your financial goals.
The calculator works on this formula: = P( 1 + r/100)n. Here, P is the principal amount, r is the interest rate, and n is the time period.
What is simple interest and how can you use the simple interest calculator?
A simple interest rate calculator is a type of savings interest calculator that helps you determine the amount you can gain after adding the interest value to the principal amount. The simple interest calculator works on this formula: A = P (1+rt). Here P is the principal amount, r is the interest rate, and t is the time period.
To use this savings interest calculator, follow the below steps to get the interest value:
- Select simple interest as the interest type
- Key in your principal amount
- Choose the annual rate of interest
- Enter the time period, this could be days, weeks, or years
Once you have entered all the information, the calculator will show you the simple interest you have earned within these parameters. This is a great way to see if the investment you are looking at aligns with your financial goals or not.
What are the benefits of a savings interest calculator?
A savings interest calculator is a convenient way to get the interest value in seconds and spares you from doing the tedious math. You can easily calculate both the simple interest and compound interest to compare the returns on your deposit.
On the other hand, if you have to repay a loan, it will also help you estimate the total amount you need to pay to the bank. A savings interest calculator is a nifty tool that helps you bypass the mathematical formulas and helps you make better financial decisions.
Bottomline
Savings interest is a great way to make your money work for you with little to no risk. The interest value on these types of deposits can come in two ways- simple and compound interest.
A savings interest calculator helps you gauge the total amount you are owed or the total amount you need to pay back. You can use both a compound interest calculator and a simple interest calculator to see the total amount.
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