What is Simple Interest?
Simple interest is a basic formula for calculating how much interest to apply to a principal balance.
Simple Interest Formula:
Simple Interest = Interest Rate x Principal Balance
Simple Interest Example
For example, let's assume that John Doe puts $1,000 in his savings account. The bank pays 3% per year in interest. Using this information and the simple interest formula above, we can calculate how much interest he will earn in a year:
Simple Interest = 0.03 x $1,000 = $30
Why Simple Interest is Important
Simple interest is a handy, easy tool for estimating the interest earned or paid on a certain balance in one period. However, it does not take into account the effects of compounding, which is the process of earning interest on principal plus interest that was earned earlier. This means it can dramatically understate the amount of interest earned or paid over time.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
We all have our bad spending habits: a $3 latte in the morning, an expensive taxi fare now and then, a cheap piece of jewelry when we're down in the dumps. We're all for...
Read More →
I probably don't have to tell you this, but the odds are stacked against you when it comes to "beating the market." By nearly 6 to 1, in fact... ...
Read More →
Cars are supposed to give us freedom, but you really have to wonder sometimes when you add up the costs of owning one. Luckily, owning a car doesn't have to feel like an unnecessary indulgence --...
Read More →
Question: I've been hearing a lot of good things about "dividend aristocrats." What are they, and should I be...
Read More →
What's better than earning rewards for using your credit cards? Getting paid hundreds of dollars in sign-up bonuses in three months or less – just for trying out a new one. ...
Read More →
