What is Interest?

Interest is the amount paid/earned for a debt or investment. There are basically two types: simple interest and compound interest.

Simple Interest

In simple interest, the interest calculation is made on the same principal amount each period. The earned interest is not added to the principal.

Formula: Interest = Principal × Rate × Time

Example: If you invest 10,000 TL at 20% simple interest per year for 3 years:

  • Annual interest: 10,000 × 0.20 = 2,000 TL
  • Total interest over 3 years: 6,000 TL
  • Total amount: 16,000 TL

Compound Interest

In compound interest, the interest earned at the end of each period is added to the principal and a larger amount earns interest in the next period. Also known as "interest on interest."

Formula: A = P × (1 + r/n)^(n×t)

Example: If you invest 10,000 TL at 20% compound interest (annual compounding) for 3 years:

  • End of Year 1: 12,000 TL
  • End of Year 2: 14,400 TL
  • End of Year 3: 17,280 TL

Comparison

Under the same conditions, compound interest always yields more than simple interest. The difference increases dramatically as time goes on and the interest rate is higher.

Use our Simple Interest and Compound Interest calculators for your own calculations.