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Monthly Interest Formula:
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Monthly interest is the amount of interest earned or paid on an account balance over one month. It's commonly used in savings accounts, loans, and credit cards to calculate periodic interest amounts.
The monthly interest is calculated using the formula:
Where:
Explanation: The formula divides the annual interest by 12 to get the monthly portion. The annual rate is converted from percentage to decimal form in the calculation.
Details: Understanding monthly interest helps with financial planning, comparing loan or savings options, and predicting account growth or debt repayment timelines.
Tips: Enter the account balance in dollars and the annual interest rate as a percentage (e.g., enter 5 for 5%). Both values must be positive numbers.
Q1: Is this calculation for simple or compound interest?
A: This calculates simple monthly interest. For compound interest, the calculation would be more complex as it includes interest on previously earned interest.
Q2: How does this differ from APR calculations?
A: APR (Annual Percentage Rate) includes fees in addition to interest. This calculator only computes interest based on the stated rate.
Q3: Can I use this for daily interest calculations?
A: No, this is specifically for monthly interest. For daily interest, you would divide the annual rate by 365 (or 360 in some cases).
Q4: Why is my actual bank interest slightly different?
A: Banks may use different calculation methods (exact day counts, compounding periods, or rounding rules) that can cause small variations.
Q5: How can I calculate total interest over multiple months?
A: For simple interest, multiply the monthly interest by the number of months. For compound interest, you would need a different formula.