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State Board · Class 6 · Mathematics

Lesson 17: Bank and Simple Interest

5 concepts · 40 practice questions with answers · Free to read

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Banks and their functions

From daily life

Your mother keeps her salary in a bank instead of at home. Why? Because the money is safe there, can be taken out when needed, and even grows a little.

Simple definition

A bank (बँक) is an authorized, licensed institution for money transactions.

Rule 1: What a bank does — In India the banking system is regulated by the Reserve Bank of India (RBI), and money kept in a bank is safe. The main functions are: accepting deposits (ठेवी) (the bank pays interest), giving loans (कर्ज) (the bank charges interest), the locker facility for valuables, and e-banking such as ATM, debit card, net banking and UPI-QR code.

A bank takes deposits and gives loans; interest flows both ways.BANKRBIDepositorsaves moneyBorrowertakes a loanreceives interestpays interestBank pays less, charges moredeposits • loans • lockers • e-banking

In the figure : In the figure how a bank works.

  • Easy : Easy: Raju keeps ₹ 5,000 in a bank; this is a deposit, and the bank pays him interest.
  • Medium : Medium: A farmer takes a loan of ₹ 40,000 for a pump; the bank charges interest on this loan.
  • Exam-type : Exam: You need to pay a bill on a holiday. Name two e-banking ways: UPI-QR code and net banking.

Rule 2: Types of loans — Loans are short-term (up to 1 year), medium-term (up to 5 years) or long-term (more than 5 years). A bank charges more interest on loans than it pays on deposits, and that is how the bank earns.

  • Easy : Easy: A loan for 8 months is short-term; for 3 years is medium-term; for 15 years (a house) is long-term.
  • Medium : Medium: If the bank pays 5% on deposits and charges 9% on loans, it keeps 9 − 5 = 4% as its earning.
  • Exam-type : Exam: A loan of 7 years – which type? Long-term, as it is more than 5 years.
Remember

Bank pays interest on deposits and charges interest on loans. RBI controls banks.

Common mistake

Thinking the bank pays the same interest on deposits and loans. The loan rate is higher.

Shortcut

Memory clue: "Deposit — bank pays; Loan — bank charges".

Spot the difference

TermMeaning
DepositMoney you put in the bank
LoanMoney you borrow from the bank
LockerSafe box for valuables

Practice questions

Easy
  1. 1Who controls the banks in India?
  2. 2What is a deposit?
  3. 3What is a loan?
Medium
  1. 4Name two e-banking facilities.
  2. 5For what is a locker used?
  3. 6Which type of loan is for 4 years?
Challenging
  1. 7A bank pays 6% on deposits and charges 10% on loans. What is its margin?
  2. 8Why does a bank charge more interest on loans than it pays on deposits?
Show answers (try them yourself first)
  1. 1Reserve Bank of India (RBI).
  2. 2Money kept in a bank.
  3. 3Money borrowed from a bank.
  4. 4ATM and UPI-QR code.
  5. 5To keep valuables safe.
  6. 6Medium-term.
  7. 710 − 6 = 4%.
  8. 8The difference is how the bank earns to run its work.

Opening a bank account

From daily life

To open a school library card you fill a form, give a photo and show an address proof. Opening a bank account is similar, only with a bit more care because it holds your money.

Simple definition

KYC (Know Your Customer) means the bank checks who you are before opening your account.

Rule 1: Opening an account — You need an application form, a passport-size photo, an ID proof (ओळखीचा पुरावा) (Aadhaar, PAN or voter ID) and an address proof (पत्त्याचा पुरावा) (electricity bill, ration card, driving licence, passport or residence certificate), plus KYC. e-KYC can be done digitally from home.

Savings account and current account compared.Savings accountCurrent accountAnyone can openTraders, businessesBuilds saving habitMany daily paymentsWithdrawal limitsNo limitsBank pays interestNo interestKYC + ID + addressKYC + ID + address

In the figure : In the figure savings and current accounts.

  • Easy : Easy: Aadhaar card is an ID proof; an electricity bill is an address proof.
  • Medium : Medium: A student without a PAN card can still open an account with Aadhaar as ID.
  • Exam-type : Exam: Why does a bank do KYC? To confirm the identity of the account holder and prevent fraud.

Rule 2: Account types and the challan — A savings account (बचत खाते) helps you save and earns interest, but has some withdrawal limits. A current account (चालू खाते) is for traders with many daily payments, with no limits and no interest. While depositing you fill a challan (चलन): name, account number, date, amount in figures and words, and signature. A cheque (धनादेश) is an order to pay a named person.

  • Easy : Easy: Notes: 6 × 500 + 4 × 200 + 3 × 100 + 2 × 50 + 20 + 5 = 3,000 + 800 + 300 + 100 + 25 = ₹ 4,225.
  • Medium : Medium: Write ₹ 4,225 in words on the challan: four thousand two hundred twenty-five rupees.
  • Exam-type : Exam: A shopkeeper pays many suppliers every day. Which account? A current account, as it has no limit on transactions.
Remember

Savings account: earns interest, limits. Current account: no interest, no limits. Challan: figures and words, signature.

Common mistake

Writing the amount in figures only on the challan. Words are also required.

Shortcut

Memory clue: "Savings — Save; Current — Carry on business".

Spot the difference

FeatureSavingsCurrent
InterestYesNo
Withdrawal limitsSomeNone
Used byIndividualsTraders

Practice questions

Easy
  1. 1Name two ID proofs.
  2. 2Name two address proofs.
  3. 3What does KYC stand for?
Medium
  1. 4What is a cheque?
  2. 5Which account gives interest?
  3. 6Find the total: 5 × 500 + 3 × 200 + 4 × 100 + 1 × 50 + 10.
Challenging
  1. 7Write ₹ 7,308 in words.
  2. 8Why can e-KYC be useful for an old person?
Show answers (try them yourself first)
  1. 1Aadhaar and PAN card.
  2. 2Electricity bill and ration card.
  3. 3Know Your Customer.
  4. 4An order to pay a named person.
  5. 5Savings account.
  6. 62,500 + 600 + 400 + 50 + 10 = ₹ 3,560.
  7. 7Seven thousand three hundred eight rupees.
  8. 8It can be done from home, so there is no need to travel to the bank.

Principal, interest and amount

From daily life

Radhika borrows ₹ 25,000 from the bank and after a year returns more than she took. The extra money is the price of using the bank's money. We call it interest.

Simple definition

Amount = Principal + Interest.

Rule 1: Principal, interest, amount — Principal (मुद्दल) is the money deposited or borrowed. Interest (व्याज) is the extra money paid for using it. The period (मुदत) is how long it is used. Amount (रास) = Principal + Interest. Rate "8 p.c.p.a." (per cent per annum) means ₹ 8 interest on every ₹ 100 for one year.

Principal plus interest gives the amount.Radhika’s loan for one year at 8 p.c.p.a.Principal ₹ 25,0002,000InterestAmount = ₹ 27,000Amount = Principal + Interest

In the figure : In the figure principal, interest and amount.

  • Easy : Easy: Principal ₹ 20,000 and interest ₹ 1,600: amount = 20,000 + 1,600 = ₹ 21,600.
  • Medium : Medium: Amount ₹ 7,450 and interest ₹ 450: principal = 7,450 − 450 = ₹ 7,000.
  • Exam-type : Exam: Principal ₹ 18,500 and amount ₹ 19,980: interest = 19,980 − 18,500 = ₹ 1,480.
Remember

Amount = Principal + Interest. Interest = Amount − Principal. Principal = Amount − Interest.

Common mistake

Calling the amount the interest. The amount includes the principal also.

Shortcut

Memory clue: "P + I = A".

Spot the difference

TermMeaning
PrincipalMoney borrowed or deposited
InterestExtra money paid
AmountPrincipal + interest

Practice questions

Easy
  1. 1Define principal.
  2. 2Define interest.
  3. 3Write the formula of amount.
Medium
  1. 4What does 5 p.c.p.a. mean?
  2. 5Principal ₹ 12,000, interest ₹ 900. Find the amount.
  3. 6Amount ₹ 30,600, interest ₹ 2,600. Find the principal.
Challenging
  1. 7Principal ₹ 45,000 and amount ₹ 47,700. Find the interest.
  2. 8Why must the borrower repay more than the principal?
Show answers (try them yourself first)
  1. 1The money deposited or borrowed.
  2. 2The extra money paid for using borrowed money.
  3. 3Amount = Principal + Interest.
  4. 4₹ 5 interest on every ₹ 100 for one year.
  5. 5₹ 12,900.
  6. 6₹ 28,000.
  7. 7₹ 2,700.
  8. 8The extra is interest, the price for using the lender's money.

Simple interest for one year

From daily life

If ₹ 100 earns ₹ 5 in a year, how much will ₹ 18,000 earn? We just count how many hundreds are in 18,000 and multiply by 5.

Simple definition

For one year: Interest = Principal × Rate ÷ 100.

Rule 1: Interest for one year — Interest on ₹ 100 at 5% is ₹ 5, so on ₹ 18,000 we need 180 hundreds: 180 × 5 = ₹ 900. The formula for one year is Interest = Principal × Rate ÷ 100. For ₹ 42,000 at 6%: 42,000 × 6 ÷ 100 = ₹ 2,520. In this class we consider interest for one year only.

Simple interest for one year: principal times rate divided by 100.Kiran: ₹ 18,000 at 5 p.c.p.a.₹ 100gives ₹ 5×180=₹ 18,000gives ?Interest = Principal × Rate ÷ 10018,000 × 5 ÷ 100 = ₹ 900Amount = 18,000 + 900 = ₹ 18,900

In the figure : In the figure simple interest for one year.

Live figure

Simple interest for one year

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  • Easy : Easy: ₹ 15,000 at 4%: 15,000 × 4 ÷ 100 = ₹ 600.
  • Medium : Medium: ₹ 36,500 at 8%: 36,500 × 8 ÷ 100 = 365 × 8 = ₹ 2,920.
  • Exam-type : Exam: Interest can have paise: ₹ 52,350 at 5%: 52,350 × 5 ÷ 100 = ₹ 2,617.50.
Remember

I = P × R ÷ 100 for one year. Divide by 100 because the rate is per ₹ 100.

Common mistake

Forgetting to divide by 100. Always ÷ 100.

Shortcut

Memory clue: "P × R ÷ 100" — multiply, then divide by hundred.

Spot the difference

PrincipalRateInterest (1 year)
₹ 1005%₹ 5
₹ 15,0004%₹ 600
₹ 36,5008%₹ 2,920

Practice questions

Easy
  1. 1Write the formula for simple interest for one year.
  2. 2Find the interest on ₹ 200 at 5%.
  3. 3Find the interest on ₹ 8,000 at 6%.
Medium
  1. 4Find the interest on ₹ 25,000 at 10%.
  2. 5Find the interest on ₹ 60,000 at 7%.
  3. 6Find the interest on ₹ 12,450 at 4%.
Challenging
  1. 7Find the interest on ₹ 35,250 at 6%.
  2. 8Why do we divide by 100 in the formula?
Show answers (try them yourself first)
  1. 1I = P × R ÷ 100.
  2. 2₹ 10.
  3. 38,000 × 6 ÷ 100 = ₹ 480.
  4. 4₹ 2,500.
  5. 560,000 × 7 ÷ 100 = ₹ 4,200.
  6. 612,450 × 4 ÷ 100 = ₹ 498.
  7. 735,250 × 6 ÷ 100 = ₹ 2,115.
  8. 8Because the rate is given per ₹ 100.

Interest problems

From daily life

Two shops offer you two plans: one bank pays 10% on ₹ 5,000, another pays 7% on ₹ 6,000. Which gives more? Simple interest helps you compare.

Simple definition

To compare plans, find the interest in each and compare.

Rule 1: Loan repayment and comparing deposits — To find the amount to repay: interest = P × R ÷ 100, then repay P + interest. To compare deposits, find the interest for each. For the reverse questions: Principal = Interest ÷ Rate × 100 and Rate = Interest ÷ Principal × 100.

Comparing interest on four deposits.Interest in one year (₹)8,000 @ 12%96010,000 @ 8%80012,000 @ 6%7205,000 @ 10%500Biggest interest: ₹ 8,000 at 12%

In the figure : In the figure comparing deposits.

  • Easy : Easy: Loan ₹ 24,000 at 9%: interest = 24,000 × 9 ÷ 100 = ₹ 2,160; repay 24,000 + 2,160 = ₹ 26,160.
  • Medium : Medium: Compare: ₹ 5,000 at 10% gives ₹ 500; ₹ 6,000 at 7% gives ₹ 420; ₹ 4,000 at 12% gives ₹ 480. The first earns the most.
  • Exam-type : Exam: Reverse: interest ₹ 640 at 8% means principal = 640 ÷ 8 × 100 = ₹ 8,000. Interest ₹ 360 on ₹ 6,000 means rate = 360 ÷ 6,000 × 100 = 6%.
Remember

Repay = P + I. Compare using interest. P = I ÷ R × 100; R = I ÷ P × 100.

Common mistake

Comparing only the rates. A higher rate on a smaller principal can earn less.

Shortcut

Memory clue: "Find I for each, then compare".

Spot the difference

QuestionMethod
RepayP + I
CompareFind I of each
Find PI ÷ R × 100
Find RI ÷ P × 100

Practice questions

Easy
  1. 1Principal ₹ 10,000 at 8%. How much to repay after a year?
  2. 2Interest ₹ 720 at 6%. Find the principal.
  3. 3Interest ₹ 300 on ₹ 5,000. Find the rate.
Medium
  1. 4Which gives more: ₹ 9,000 at 5% or ₹ 7,000 at 7%?
  2. 5A loan of ₹ 16,000 at 5%: find the interest.
  3. 6A loan of ₹ 30,500 at 6%. How much must be repaid?
Challenging
  1. 7Aarav deposits ₹ 14,000. After one year he gets ₹ 14,840. Find the rate.
  2. 8Why is it not enough to compare only the rates of two plans?
Show answers (try them yourself first)
  1. 1800 interest; ₹ 10,800.
  2. 2720 ÷ 6 × 100 = ₹ 12,000.
  3. 3300 ÷ 5,000 × 100 = 6%.
  4. 4450 against 490, so the second.
  5. 5₹ 800.
  6. 61,830 interest; ₹ 32,330.
  7. 7Interest 840; 840 ÷ 14,000 × 100 = 6%.
  8. 8The principal also matters, so we compare the interest in rupees.