Uncomplicating interest

It is possible that you are losing and not making money at the same time without realizing it. Surely you’ve heard of the famous “interest”, but do you know how they work? To Financial Group is here to help you with this, stay calm (and attentive!).

Simple interest and Compound interest

Simple interest and Compound interest

There are two types of interest, simple interest and compound interest. Simple interest is an increase calculated on the basis of the initial value of the operation and the duration of the operation. The formula is: interest = capital. rate. time

Imagine that you bought a product worth $ 800 and will pay in 4 months with 2% interest per month (remember those percentage exercises and decimal number of the school?

They will be useful now). In this example Interest = 800. 0.02. 4 that gives a total of R $ 64. The amount is the final value, adding the initial value and the interest, in this case R $ 864.

Compound interest is calculated at the end of each period of the operation, generating interest over previous interest. They are most commonly used in loans and investments.

The compound interest formula is:

The compound interest formula is:

Amount = Capital. (1+ rate) ^ time.

Using the same example, Amount = 800. (1 + 0.02) 4
Amount = 800. 1.08
Amount = 865.94

To know only the value of interest is only to make a difference between the amount of the initial capital (and that’s where the scare comes from).

Ready to not fall for pranks and lose money? If you’ve already done it do not worry, Financial Group helps you get out of the red.