For many people working in the economic field, the concept of simple interest is no longer strange to many of them. In the article below, giaphapdonggoi.net will provide you with useful information about how to calculate as well as the practical application of simple interest to apply accordingly !
1. What is simple interest?
Simple interest (English is Simple Interest) is a form of interest with a formula that is calculated based on the initial amount also known as initial principal determined in a certain period of time. For example, if Ms. A deposits a savings account with an initial amount of 100 million VND at an interest rate of 8%/year, the interest after one year will be calculated according to the method of applying the simple interest calculation formula that Ms. received when withdrawing on time is 8 million VND.
Simple profit concept
Terminology: In the definition of simple interest, there are terms that we need to understand, namely:
Interest: Is the amount of money you receive at a specified initial rate based on the original amount that you deposit after the deposit is due.
Principal: The initial amount you spend to deposit in a bank or invest with the purpose of increasing your assets.
Term: is a period of time from the time you invest money until you receive the full amount, including principal and interest.
2. Simple interest formula
To calculate the amount you receive after depositing a certain amount by simple interest calculation, we have the following formula:
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S = Po x i x n
Inside:
S is the amount you receive including capital and interest when you decide to deposit or invest a certain amount
Po is the initial amount that you invest or save
i is the fixed interest rate applied to your initial deposit
n is the number of tenors, also known as the time in which you plan to deposit the amount.
Example: Suppose that Ms. An deposits a savings account in a bank with an initial amount of VND 200 million with a term of 5 years and an interest rate of 8%/year. After 5 years, the amount of interest plus initial capital that Ms. An received from saving money in the above bank is: S = 200 x 8% x 5 + 200 = VND 280 million.
3. Application of simple interest in practice
Interest is applied mainly in the economic field, when you decide to invest or save your initial amount.
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Simple interest is also used to invest in bonds.
4. Advantages and disadvantages of simple interest
In terms of advantages:
Simple interest has a fairly simple and easy-to-understand formula that is easy to apply to the vast majority of people.
In addition, for those who invest but want to feel safe and receive a regular amount of money every month, choosing simple interest is a wise decision.
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Disadvantages of simple interest
If put on the balance compared to compound interest, simple interest brings much less profit. From the calculation formula, investors can also easily guess. Since the amount of interest is based on the principal amount received over the term, there is no way for the investor to combine them with the principal. For this reason simple profit having less profit is also natural and understandable. Let's try the following example to see the reality clearly!
For example: If Mr. T initially invests with an amount of 100 million VND with an interest rate of 15%/year, in the next 20 years Mr. T will receive both capital and interest if calculated using the simple interest formula of 300 million VND. . However, this is the amount if calculated according to the simple interest formula, what about compound interest?
If calculated according to the formula compound interest, after 20 years, the total amount of money Mr. T received will be 1 billion 637 million VND. This number is so disparate, isn't it? From this fact, you are fully qualified to analyze as well as choose for yourself the right investment form to maximize profits.
Here is some very useful information about simple interest. In addition, you can find out more interesting and useful information only HERE. Any questions you have, do not hesitate to share them with us via hotline: 0911 904 968
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