Calculating Simple Interest

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Simple Interest is simply the interest earned on the principle.  This means once the interest is made, it is not added to the principle for compounding.

In this formula:

I = P x r x T where….

  • I represents the interest
  • P represents the principle
  • r represents the rate of interest
  • T represents the time

So lets do an example to show how this formula works.

You’ve invested $10 000 and put it into a high interest savings account with a yearly interest rate of 4.75 percent.  You decide to keep it in there for ten years and invest the interest into other things.  Using the simple interest formula, you’ll be able to calculate how much interest you’ve made over the ten years.

  • The Principle is $10 000
  • The interest rate is 4.75%
  • The Time is Ten years

I = $10 000 x 0.0475 x 10

I = $4750 in interest

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