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Glossary Finance

Simple interest

Simple interest is interest calculated only on the original amount, so it grows by the same sum each period.

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In more detail

The formula is I = P × r × t. $5,000 at 4% for 3 years earns $600. Compare Compound interest, which earns interest on interest.

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See also

  • Glossary Compound interest
    Compound interest is interest calculated on the original amount plus all the interest already added, so growth builds on itself.
  • Glossary APR
    APR (annual percentage rate) is the yearly cost of borrowing, expressed as a percentage, that includes the interest rate plus certain fees.
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