Simple interest is a fixed percent of the original amount, paid each year.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
The calculation
Interest = amount × rate × years. £500 at 4% for 3 years earns 500 × 0.04 × 3 = £60.
Why it is called simple
The percent is always taken from the original amount, never from the amount plus interest earned.
Interest or total
Read the question. "How much interest" is £60; "how much altogether" is £560.
The simple interest formula
Interest = principal × rate × time. £500 at 4% for 3 years earns 500 × 0.04 × 3 = £60. The principal is the amount you started with, the rate is per year as a decimal, and the time is in years.
The rate and the time must match
If the rate is per year, the time must be in years. Six months is 0.5 years, not 6. Mismatched units are the main source of error, and they produce answers wrong by a factor of twelve rather than a little.
Simple interest is not what banks usually pay
Simple interest is calculated on the original amount every year. Compound interest is calculated on the running total, so it earns interest on interest and grows faster. Real accounts and real loans almost always compound.
The same formula, from the other side
Interest on a loan is what you pay rather than what you earn. Being able to compute it is what lets you compare two loan offers, and the arithmetic is identical — only the direction of the money changes.
Step 2: Try It Yourself
Tap and try it out.
| Years | Interest in pounds |
|---|---|
| 1 | 2 |
| 2 | 4 |
| 3 | 6 |
Every row is the same ratio. 1 to 2 is the same comparison as 3 to 6.
Step 3: Watch an Example
One step at a time.
Watch Ana Work Out Three Years
£500 at 4% simple interest for 3 years.
- Step 1
She finds one year first: 4% of 500 is £20.
Step 4: Your Turn
Practice makes it stick.
The Savings
Problem 1 of 2
£400 at 5% for 2 years. How much interest, in pounds?
The Total
Problem 2 of 2
Same account. How much altogether, in pounds?
Year by Year
1 of 4
£1000 at 3% for 1 year. Interest in pounds?
2 of 4
£1000 at 3% for 4 years. Interest in pounds?
3 of 4
£200 at 10% for 3 years. Total in pounds?
4 of 4
Does simple interest take the percent from the growing total? Answer 1 for yes, 0 for no.
Step 5: Quick Check
Show what you know.
Question 1 of 1
£600 at 5% for 2 years. Interest in pounds?
What You Learned
- Simple interest is a fixed percent of the original, paid each year.
- Interest = amount × rate × years.
- Check whether the question wants the interest or the total.