How Do You Calculate Interest On Saving?

First of all you have to find out the rate of interest that is prevailing at the institution where you are intending to deposit your money. Suppose you find that the rate of interest that the institution gives to its depositors is 5 per cent. As we all know, most of the institutions calculate the interest on a compound basis, so the formula for compound interest should be used to calculate the amount of interest. The formula is the following: P (1+ r/100) ⁿ - P. We already have supposed about the rate of interest and if we suppose that the principal you have is 100 pounds sterling and the interest is compounded annually, then you can fit the data into the abovementioned formula and can get the result. The result that comes is following: 100 (1+ 5/100) = 100 X 21/20 = 105. 105 pounds sterling is the accumulation of interest and principal and by deducting the principal from it, you can calculate interest and in this case it is 5 pounds sterling.

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