simple interest


Definition of simple interest

: interest paid or computed on the original principal only of a loan or on the amount of an account

First Known Use of simple interest

1798, in the meaning defined above

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Last Updated

23 May 2019

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The first known use of simple interest was in 1798

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More Definitions for simple interest

simple interest


Financial Definition of simple interest

What It Is

Simple interest is a basic formula for calculating how much interest to apply to a principal balance. The formula for simple interest is:

Simple Interest = Interest Rate x Principal Balance

How It Works

For example, let’s assume that John Doe puts $1,000 in his savings account. The bank pays 3% per year in interest. Using this information and the formula above, we can calculate how much interest he will earn in a year:

Simple Interest = 0.03 x $1,000 = $30

Why It Matters

Simple interest is a handy, easy tool for estimating the interest earned or paid on a certain balance in one period. However, it does not take into account the effects of compounding, which is the process of earning interest on principal plus interest that was earned earlier. This means it can dramatically understate the amount of interest earned or paid over time.

Source: Investing Answers

simple interest


English Language Learners Definition of simple interest

finance : interest paid only on the original amount of money and not on the interest it has already earned

simple interest

Legal Definition of simple interest

see interest sense 5

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Comments on simple interest

What made you want to look up simple interest? Please tell us where you read or heard it (including the quote, if possible).


appealing forcibly to the mind or reason

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