Simple Interest Formula & Examples
Simple Interest Formula:
Interest = Principal × Rate × Time
Total Amount = Principal + Interest
Interest = Principal × Rate × Time
Total Amount = Principal + Interest
Savings Account Example:
You deposit $5,000 in a savings account with 3% annual interest for 2 years.
Calculation: Interest = $5,000 × 3% × 2 = $300
Total Amount: $5,000 + $300 = $5,300
Certificate of Deposit (CD):
A 1-year CD with $10,000 principal at 4.5% annual interest.
Calculation: Interest = $10,000 × 4.5% × 1 = $450
Total Amount: $10,000 + $450 = $10,450
Short-term Loan:
A $2,000 loan at 8% annual interest for 6 months (0.5 years).
Calculation: Interest = $2,000 × 8% × 0.5 = $80
Total Amount: $2,000 + $80 = $2,080
Investment Bond:
A $25,000 bond with 6% annual interest held for 3 years.
Calculation: Interest = $25,000 × 6% × 3 = $4,500
Total Amount: $25,000 + $4,500 = $29,500