Simple vs. compound interest, and the rule of 72

Simple interest

Interest is paid only on the original amount:

interest = amount × annual rate × years

Example: 50,000,000 Toman at 20% a year for one year earns 10,000,000 Toman.

Compound interest

Interest is added to the balance and earns interest itself:

final amount = amount × (1 + rate ÷ periods)^(periods × years)

Example: the same 50,000,000 Toman at 20% a year, compounded monthly, earns 10,969,554 Toman in a year — almost a million more than simple interest.

The rule of 72

To estimate how long money takes to double with compound interest, divide 72 by the yearly rate. At 20% a year: 72 ÷ 20 ≈ 3.6 years. The exact answer with yearly compounding is 3.8 years — close enough for a quick estimate.

Real return

Interest only increases what your money can buy if it beats inflation. If prices rise faster than your interest rate, the balance grows but its buying power shrinks.

Tools for this

• Interest calculator
• Loan calculator

Rates in the examples are illustrations. Check your bank's actual rate, how often interest is paid, and any conditions for early withdrawal.