For example, if you had an average daily balance of $2,000 on a credit card, a daily interest rate of 0.0658%, and 30 days in your billing cycle, you’d owe $39.45 in interest.

Reviewed by Caitlin Clarke Fact checked by Suzanne Kvilhaug Simple Interest vs. Compound Interest: An Overview Interest is the amount of money you must pay to borrow money in addition to the loan ...

For example, you’d love it if your credit card used simple interest to calculate your balance instead of compound interest! Likewise, you probably don’t want to be too heavily invested in bonds that ...

To calculate the simple interest for this example, you’d multiply the principal ($5,000) by the annual percentage rate (5 percent) by the number of years (five): $5,000 x 0.05 x 5 = $1,250 ...

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).

Therefore, the accumulated interest would be 6% of $30,000 each year, which comes to $1,800. In 5 years, you would pay out $9,000 as simple interest on the loan.

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.

If you invest $100,000 in a one-year CD that pays interest at 2% per annum, you would earn $2,000 in interest income (100,000 x 0.02 x 1) after a year. If the CD pays the same annual interest rate ...

Principal balance x interest rate x loan term = Simple interest For example, say you have a $10,000 federal student loan with an interest rate of 4.99% and a 10-year repayment term.

Simple interest simply means a set percentage of the principal amount every year. For example, if you invest $1,000 at 5% simple interest for 10 years, you can expect to receive $50 in interest ...

Simple interest is based on the principal amount of a loan, while compound interest is based on the principal plus accumulated interest. Learn more in our guide.