Simple interest - How to calculate it

Simple interest is different than compounded, or compounding, interest. With compounding interest, you earn interest on your interest, so that your money grows exponentially. But with simple interest, you don’t earn interest on your interest, you only earn interest on your principal balance. Therefore, your money grows linearly.

 
simple interest

Simple interest is different than compounded, or compounding, interest.

 

Skip to section:

0:06 // What is simple interest?
1:03 // The interest formula I=Prt
1:47 // First example: How to find the interest you earn in 2 years?
4:31 // Second example: How much will you have in total? And the amount formula A=P+I
7:28 // Third example: How much money will you have after 6 years?

 
 

In this video we’re going to talk about simple interest and how to calculate it. We’ll look at the formula to use to calculate interest, but we’ll also look at a formula that calculates how much money we’ll have in total in the future. The amount we’ll have in the future, as we’ll see, is just the amount of money we started with, plus all the interest we earned.

Which means we actually don’t really need a separate formula at all. As long as we know how to calculate interest, then we can simply add the interest amount to the principal amount that we started with, and we’ll get the total amount of money that we’ll have in the future.


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Krista King