# Simple and Compound Interest

- Created by: Caitlin Ward
- Created on: 18-02-14 19:54

First 212 words of the document:

Simple and Compound Interest

What is interest?

Interest is the money paid back extra for a loan. When you take out a

loan, you are told that you have to pay money back to the bank so that they

can make a profit. Both of the types of interest below are ways that banks can

charge you or give you interest to your account. The rate of interest depends

on the type of account and how well the economic climate is.

What is Simple Interest?

The formula to work this out is:

I=PxRxN

I = Interest

P = Amount Borrowed (Principal)

R = Interest Rate

N = Years borrowed

So if you borrowed £1000 for 2 years at an interest rate of 3.4% you would

have to pay...

1000 x 3.4 x 2 = £6800 + £1000 = £7800

What is Compound Interest?

The amount of interest increases each year. As more money is added to the

account, the interest goes up.

For example: You have £1000 in your bank account. You get 10% each year. So

you will get an extra £100 = £1100

The next year you will have 10% interest on top of that

£1100 + £110 = £1210

Each year it will go up and up and up.

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