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INTEREST

Hello friends,
Welcome to my blog ‘Bazaar guruji’
 Your Investment Makes You Richer.


       
              In case of saving account and fixed deposit or recurring deposit bank provide interest rate one is simple and another one is compound interest.



                  What is simple interest? how to convert into compounding effect? First, we know the procedure of interest calculation.

Ø Simple interest: -
     Let us tack one example you deposit 5,000
In simple interest rate of interest is 10% for 2 years.

 Interest calculation: -
I= PRN/100
I=Interest
P= Principle
N=Number of Year
Ø After one-year interest of 5,000 is 500 and
Ø After two-year interest of 5,000 is 500+500=1000


Ø Compound interest: -

             For compound interest after first year principle is equal to sum of starting principle plus interest of first year.  

Same example for compound effect calculation, 
Ø Interest is same after one year =500
Ø But for second year principle =5,000 + 500
                                                     =5,500

Interest after second year 10% of 5,500 is equal 550.
Ø Total interest after two year =500+550
                                                    =1,050

               
             We can say that after compounding 50 increments is more than simple interest. If you save you money in form of fixed deposit after due date you must inform your bank to add your interest in your principle. So, you get compounding effect in you money.



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