Understand How "Interest" Can Help and Hurt Your Money with One Calculation.
Simple Interest Calculation (SIC)
The following calculation can be used to determine how much you will generally earn on a monthly basis or how much a loan will cost you on a monthly basis:
Balance × Dividend or Interest Rate ÷ 365 Days × Number of Days in the Month = Estimated Monthly Earning or Cost
When it comes to savings, the higher the dividend rate, the more you will earn. Here are a couple of examples:
Example 1: You have a balance of $1,000 and the Dividend Rate is 2.96%. How much will you earn in October?
Answer: $1,000 × 2.96% ÷ 365 × 31 = $2.51 — you will earn $2.51 in October.
Example 2: You have a balance of $1,000 and the Dividend Rate is 3.15%. How much will you earn in October?
Answer: $1,000 × 3.15% ÷ 365 × 31 = $2.68 — you will earn $2.68 in October.
When it comes to loans, the higher the interest rate, the more money you will owe. Here are a couple of examples:
Example 1: You have a loan balance of $1,000 and the Interest Rate is 9.50%. How much interest will you pay in October?
Answer: $1,000 × 9.50% ÷ 365 × 31 = $8.07 — you will pay $8.07 of interest in October.
Example 2: You have a loan balance of $1,000 and the Interest Rate is 11.50%. How much interest will you pay in October?
Answer: $1,000 × 11.50% ÷ 365 × 31 = $9.77 — you will pay $9.77 of interest in October.
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