This interest calculator helps determine interest payments as well as final balances on the fixed principal amounts. It also offers some additional factors that can be considered in calculations including tax on the interest income as well as the inflation rate.
Interest is actually the compensation that the borrower pays to lender for using their money. It is either a fixed amount or a percentage of the amount being lent. All the financial instruments all over the world basically rely on interest concepts.
Our interest calculator not just calculates the total amount of interest according to a certain percentage but also gives you the Future Value of the money being lent. Besides it also takes into account some additional factors like Tax Rate and Inflation Rate as well.
Fixed Interest Rate vs. Floating Interest Rate
Any savings or loans can be subjected to two different types of interest rates. These are fixed interest rate and floating interest rate. The ones with floating rate are usually based around a certain reference rate. Loan rate is normally a bit higher than reference rate while savings rate stays a bit lower. And the difference between the two is considered as Bank’s profit. However, keep in mind that our interest calculator only takes into account the fixed rates.
There are a few types of interest incomes on which you have to pay tax. A few examples could be savings, bonds and certificates of deposit. As far as the US is concerned, there is tax imposed on corporate bonds always. There are some types of bonds that are taxed fully while others are taxed partially. And these taxes can impact end balances big time. So, this interest calculator also considers the tax rate if applicable.
The basic definition for the rate of interest is increase in general price levels. It means that any fixed amount will afford relatively less as a result of inflation. As for the US, the inflation rate has been around 3% in last hundred years.
For calculation purposes, you can leave inflation rate to 0 if you are looking for quick and generalized results. However, if you want it to be more accurate then you must enter the exact rate of inflation in the country to come up with correct figures for the amount of interest that you'll have to bear over a period of time and the Future Value of starting principal.
When the inflation rate and the taxes are combined, it becomes harder for real value to grow. So, it requires a high enough stable rate of interest to bring things to level. This interest calculator, at least gives you an idea of what you can make or what you have to pay considering the current inflation rate and the amount of taxes that have to be paid on a certain income. Just give it a try and see if it gives you the most accurate results possible or not. It surely will!