HaatBeatHow it's calculated
I = P × r × t
Total = P + I
P is the principal, r is the yearly rate as a decimal and t is the time in years. Interest is never added to the principal.
Assumptions
- The rate is fixed for the whole period.
- Part years are counted proportionally (2.5 years earns 2.5 years of interest).
Worked example
10,000 at 5% a year for 3 years earns 1,500 in simple interest, for a total of 11,500.
Questions
How is simple interest different from compound interest?
Simple interest is always worked out on the original principal. Compound interest adds each period’s interest to the balance, so later interest is larger.
Can I enter months?
Enter them as a fraction of a year: 18 months is 1.5 years.
Where is simple interest used?
Some short-term loans, bonds between coupon dates and some deposits use it. Check the terms of your own product.