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, 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.

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 ...

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.

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).

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 ...

For example, if you borrow $1,000 for a year at 5%, you’ll owe $50 in interest. If you put $1,000 into a savings account with a 1.5% annual interest rate, you’d earn about $15 in interest over ...

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.