Credit and Deposit Interest Comparison
When you take a loan, the total amount you will pay is calculated. Then, the required annual simple interest rate to earn the same amount from a deposit is automatically calculated.
Simple vs compound interest comparison is a core decision input for monthly installment and total loan-cost analysis.
Related calculators: Loan Calculator, Payroll Calculation (For Employee), Severance Pay Calculation
Loan Calculation
Monthly Compound Interest
Deposit Calculation
Annual Simple Interest
Required rate for equal earnings with loan payment
Same as loan term
Same as loan amount
If this deposit were compound interest:
Monthly % (Annual % )
Earning %0.00% with simple interest is equivalent to earning monthly %% with compound interest
💡 How Does This Calculator Work?
Basic Logic: When you take a loan, the total amount you will pay is calculated. Then, the required annual simple interest rate to earn the same amount from a deposit is automatically calculated.
📉 In Loans:
- • Compound interest is used (monthly)
- • Unpaid interest is added to principal
- • Interest on interest is calculated
- • Actual cost is higher than the annual rate
📈 In Deposits:
- • Simple interest is used (annual)
- • Paid in a single payment at maturity
- • No interest on interest
- • %15% withholding deduction is applied
⚠️ Example: You will take a 100,000.00 loan and pay back 119,890.00 in 8 months. To earn 119,890.00 by depositing the same 100,000.00 after 8 months, you need an annual simple interest rate of %0.00%.
These calculations are for informational purposes only. Consult your financial institution for exact figures.
Calculation Details and Frequently Asked Questions
1What is Compound Interest?
What is Compound Interest?
Compound interest is a type of interest where interest is calculated on interest. At the end of each period, the interest earned is added to the principal, and in the next period, interest is calculated on both the principal and accumulated interest. Therefore, compound interest provides higher returns than simple interest.
2What is Simple Interest?
What is Simple Interest?
Simple interest is a type of interest calculated only on the principal amount. At the end of each period, the interest earned is not added to the principal, and in the next period, interest is calculated only on the original principal. Simple interest is commonly used in deposit calculations.
3Calculation Method
Calculation Method
This calculator uses monthly compound interest for loans and annual simple interest for deposits. When you take a loan, the total amount you will pay is calculated, then the required annual simple interest rate to earn the same amount from a deposit is automatically calculated.
4What is Withholding Deduction?
What is Withholding Deduction?
Withholding is a type of tax deducted from deposit interest income. In Turkey, a 15% withholding deduction is made from deposit interest income. This deduction is subtracted from the gross interest income amount, and net interest income is calculated.
5Frequently Asked Questions
Frequently Asked Questions
What is the difference between compound interest and simple interest?
In compound interest, interest on interest is calculated, while in simple interest, interest is calculated only on the principal. Therefore, compound interest provides higher returns for the same rate and term.
Why do loan interest rates use compound interest?
Using compound interest in loans is a more suitable method for banks' risk management and profitability calculations. Additionally, unpaid interest is added to the principal, providing higher interest income in the next period.
Why do deposit interest rates use simple interest?
Simple interest is commonly used in deposit calculations because payment is made in a single installment at maturity. This simplifies the calculation and makes it more understandable for customers.
How is withholding deduction calculated?
Withholding deduction is calculated as 15% of gross interest income. For example, for 1000 TL gross interest income, 150 TL withholding deduction is made, and 850 TL net interest income is obtained.
Which countries is this calculator valid for?
This calculator is globally valid in terms of interest calculation logic. However, withholding rates and regulations may vary by country.