Let’s have an introduction to interest –

When we deposit money in our bank account or financial institutions, we get some extra money for our deposits. This extra money is called the **interest**.

Similarly when we borrow money from our bank or financial institution, we have to pay them back something a little extra (other than the amount we borrowed). Again this extra amount is called **interest**.

Interest is charged as a percentage of the amount borrowed (or invested) for a certain fixed period before you repay (or withdraw) your borrowed (or withdrawn) amount.

The amount you borrow or invest is called the **Principal**, and is represented by ‘**P**‘.

The percentage of interest – called rate of interest – is usually calculated on an annual basis (per annum), and is represented by ‘**R**‘.

The time or length of borrowing/investing is called time period, usually given in number of years – sometimes in months or even days – and is represented by ‘**T**‘.

There are two types of interest: Simple interest and Compound interest.

Compound interest is obtained by two ways: through calculation, and by using a formula