Simple Interest: SI = P × R × T / 100. Interest is calculated only on the principal amount. Total = Principal + Interest. Used for short-term loans, PPF (not really), NSC.
FAQ
Simple vs Compound Interest?
Simple Interest: Calculated only on the principal. SI = P × R × T / 100. Compound Interest: Calculated on principal + accumulated interest. CI = P(1+R/n)^(nT) − P. Compound interest grows faster over time.
What is effective annual rate?
The effective annual rate (EAR) accounts for compounding within a year. If 8% is compounded monthly, EAR = (1 + 0.08/12)^12 − 1 = 8.30%. This is the actual rate you earn/pay.
What is Rule of 72?
Divide 72 by the interest rate to estimate how long it takes to double your money. At 8% interest: 72/8 = 9 years to double. At 12%: 72/12 = 6 years. Works for compound interest.
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