While interest earned on savings deposits may sometimes be simple to calculate by multiplying the interest rate by the principle, in most cases it is not quite so easy.

For instance many savings accounts quote an annual rate yet compound interest monthly. Each month a fraction of the annual interest is calculated and added to your balance, which in turn affects the following months' calculation. This cycle of interest being calculated in increments and added to your balance continuously is called compounding and the easiest way to calculate a future balance is using a compound interest formula.

It is calculated by multiplying the principal, rate of interest and the time period.

The formula for Simple Interest (SI) is “**principal x rate of interest x time period divided by 100**” or (P x Rx T/100).

**Annul Interest** - 250000x (15/100) =** 37500**

**Monthly Interest - **37500/12 = **3125**

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