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

Examples of simple interest in a Sentence

Recent Examples on the Web Few college students completed a course in personal finance while in high school, and three out of four young people in America cannot calculate the simple interest on a loan. Julie Bunn, Twin Cities, "Julie Bunn: Concerned about college loans? You should be," 14 July 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'simple interest.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of simple interest

1622, in the meaning defined above

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The first known use of simple interest was in 1622

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Cite this Entry

“Simple interest.” Dictionary, Merriam-Webster, Accessed 5 Jul. 2020.

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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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Rhyming Dictionary: Words that rhyme with simple interest

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