simple interest

noun
Updated on: 26 Jul 2017

Definition of simple interest

  1. :  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


Financial Definition of SIMPLE INTEREST

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.


SIMPLE INTEREST Defined for English Language Learners

simple interest

noun

Definition of simple interest for English Language Learners

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


Law Dictionary

simple interest

  1. see interest 5

Learn More about simple interest


Seen and Heard

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

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

to plunder or ravage

Get Word of the Day daily email!

Test Your Vocabulary

Time Traveler Quiz: Which Word Came First?

  • time-traveler-quiz-which-word-came-first
  • Which came first?
How Strong Is Your Vocabulary?

Test your vocabulary with our 10-question quiz!

TAKE THE QUIZ
Syn City

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!