How to Figure out Simple Interest

Simple interest is easy to figure out and adds up over time.

Simple interest investments will not put you into early retirement but they do offer a good example of what savings can do for you and of the formulas and math behind interest this is one of the most basic that must be mastered before moving on to more complicated calculations.

Things You'll Need

• bank account
• rate
• starting money
• term of time in years

Instructions

1. Start by collecting the information. You need to know how long the term or time that the money will sit is. This must be in years for the formula to work so if you need to divide by 12 then do it. You will also need the rate or percentage that the bank is offering. This is usually pretty low on savings accounts but can be higher at credit unions. You also need to know how much money you're starting with for the loan or how much money you're putting into the account to start it.

2. Multiply the original amount by the rate by the number of years. This equals the amount of interest on the loan or that you have gained if it is simple interest on a savings account. When you add this amount to the original, you have the total that you will pay over the life of the loan or the total that will be in your savings account as long as you keep the money in there the whole time.

3. Try examples.

   If I put $10.00 in my child's bank account and it earned simple interest at a rate of 3% a year.
   $10 x .03 x 1 = $.30
   Added to the original this would leave $10.30 in my child's account at the end of the year.

   This could be so much more. Say I put $3,000 in there instead.

   $3000 x .03 x 1 = $90.00
   Which would leave a total of $3,000.00 + $90.00 = $3,090.00 at then end of the year. Just imagine doing it over and over again from their birth until they were 18, and needed the money.

   $3000 x .03 x 18 = $1620 or a total of $4620.00

References

• WebMath: Simple Interest Calculator