What Is Ordinary Interest?

What Is Ordinary Interest?

Ordinary interest is interest based on a 360-day year; exact interest, which is sometimes referred to as simple interest, is usually based on a 365-day year, as noted by AllBusiness. When calculating the interest on a large sum of money, the difference between exact interest and ordinary or simple interest can be quite substantial; the ratio of ordinary to exact interest is 1:1.0139.

Ordinary interest differs from exact interest because it is based on 12 months, each of them with 30 days, whereas exact interest is based on the 365-day calendar. Treasury bills, mortgages, corporate bonds and installment loans with precomputed interest all earn ordinary interest.