Learn what simple interest is and how to calculate it using examples with a simple interest formula. You can also use a simple interest calculator.

The formula for simple interest is principal times the interest rate times the period. Usually period is expressed as a fraction of 12. For example, one month of interest will be 1/12.

For example, if you borrow $1,000 from a friend and agree to pay 6% simple interest for two years, the formula above tells you that you'll pay $120 in total interest ($1,000 x 0.06 x 2).

But not all interest rates are the same. In the world of finance, you’ll run into two types of interest: simple and compounding. Here’s a helpful overview of simple interest vs. compound interest.

To better understand how simple interest works, consider the following example: You take out a $5,000 personal loan with a 6% interest rate and a three-year term with monthly payments.

On the surface, an interest rate is just a number. How that number applies to debt or equity opens up a world of possibilities. The first consideration is always whether it’s simple interest vs.

When looking at a narrow time frame like a single bank statement period, the compound interest formula will give similar results to the simple interest formula. Using the same data from the ...

Here’s another simple interest example: If a $10,000 deposit is in an account that earns only 0.15% interest per year, the interest rate would be expressed as 0.0015.