Understanding Interest

Interest is a key concept in both saving and borrowing money.

• Simple Interest:
  • Calculated only on the principal amount.
  • Formula: Principal × Rate × Time.
• Compound Interest:
  • Earns interest on both the principal and previously earned interest.
  • Formula: Principal × (1 + Rate/Number of Compounding Periods)^(Time × Number of Compounding Periods).
• Annual Percentage Yield (APY):
  • Reflects the real rate of return on savings accounts, considering compounding interest.