How to Compute Interest

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Compute interest by figuring out what type of interest is being earned or charged, taking the amount of money on loan and dividing that number by the number of payments. Find out why compound interest is the best find of interest for an investor with information from a registered financial consultant in this free video on interest rates.

Part of the Video Series: Personal Finances & Money Management
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Video Transcript

This is financial adviser Patrick Munro talking about how to compute interest. One of the easiest ways to compute interest is to buy a financial planning calculator but if your budget doesn't permit that, be aware that there's different types of interest. One type of interest is simple interest, that's the type of interest you want to be paying if you are indebted to somebody. The best kind of interest to have when you're an investor is compound interest and it's been referred to as the eighth wonder of the world. And in fact a penny that doubles everyday is worth 1.6 million dollars in 30 days through the magic of compounding interest. But computing interest in important, you need to make sure that you're aware of percentages and time frames. You have to take the amount of time that the money is out on the loan and then divide that by the number of payments and then of course the interest rate will reveal itself. Knowledge is power and you want to make sure you have the lower interest rates possible at any given time to maximize your return. This is Patrick Munro, financial adviser talking about how to compute interest.


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