Bankers Rule Interest Calculator

Formula

The formula to calculate Bankers Rule Interest is:

\[ \text{I} = \frac{P \times r \times t}{360} \]

Where:

$\text{I}$ is the interest ($)
$\text{P}$ is the principal amount ($)
$\text{r}$ is the rate of interest (decimal)
$\text{t}$ is the time period (in days)

What is Bankers Rule Interest?

Bankers Rule Interest, also known as the Ordinary Interest Method, is a method of calculating interest based on a 360-day year instead of a 365-day year. This method is often used by banks and other financial institutions for its simplicity and convenience. The interest is calculated by multiplying the principal amount by the rate of interest and the time period, which is then divided by 360. This method can result in slightly higher interest charges compared to the Exact Interest Method which uses a 365-day year.

Example Calculation

Let's assume the following values:

Principal Amount (P) = $1000
Rate of Interest (r) = 0.05
Time Period (t) = 30 days

Using the formula to calculate the Bankers Rule Interest:

\[ \text{I} = \frac{1000 \times 0.05 \times 30}{360} = 4.17 \text{ dollars} \]

The interest is $4.17.