simple vs compound interest banking
Simple vs Compound Interest in Banking
Choosing the right interest model is critical for comparing loans and savings plans accurately.
Bangladesh-focused guide with practical calculation workflow.
Step-by-Step Explanation
- Calculate simple interest output
- Calculate compound output
- Compare total cost or return side by side
Formula Used
- Simple interest = P × r × t
- Compound amount = P × (1 + r/n)^(n×t)
Example Calculation
- At same rate and tenure, compound usually yields higher return for savings and higher cost for debt.
Common Mistakes
- Comparing products without matching compounding period
- Using flat rate as reducing balance equivalent
FAQ
- Which is better for saver? Compound generally.
- Which is better for borrower? Lower effective rate is better regardless of label.
Related Calculators
- Open: /calculators/simple-interest-calculator
- Open: /calculators/compound-interest-calculator
- Open: /calculators/interest-calculator