1. What is Annual Interest?

Annual interest represents the amount of money earned on savings or investments over one year. It is calculated using simple interest formula based on the principal amount and annual interest rate.

2. How Does the Calculator Work?

The calculator uses the simple annual interest formula:

Where:

• \( Principal \) — Initial amount of money invested or saved
• \( Annual\ Rate \) — Annual interest rate expressed as a decimal

Explanation: This formula calculates the interest earned over one year without considering compounding effects.

3. Importance of Annual Interest Calculation

Details: Calculating annual interest helps individuals and investors understand their potential earnings, compare different savings options, and make informed financial decisions about where to place their money.

4. Using the Calculator

Tips: Enter the principal amount in your local currency and the annual interest rate as a decimal (e.g., 5% = 0.05). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How do I convert percentage to decimal?
A: Divide the percentage by 100. For example, 5% becomes 0.05, 3.25% becomes 0.0325.

Q3: Is this calculator suitable for bank savings accounts?
A: Yes, for accounts that pay simple annual interest. Most modern savings accounts use compound interest, so check with your financial institution.

Q4: Can I use this for loan interest calculations?
A: This calculator works for simple interest loans, but most modern loans use compound interest or amortization schedules.

Q5: What are typical annual interest rates for savings?
A: Rates vary widely by institution and economic conditions, typically ranging from 0.01% to 5% for standard savings accounts.