Banks use various interest calculations like simple interest, compound interest, and APR to determine the interest paid on deposits.
Types of interest calculations that banks use to determine how much to pay in interest for money on deposit include simple interest, compound interest, and APR. Simple interest is calculated only on the principal amount, while compound interest includes the accumulated interest in the computation. APR, or Annual Percentage Rate, is a standardized way to represent the interest rate over a year, providing a clearer understanding of the cost of borrowing money.
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