The simple interest formula
Simple interest is charged only on the original principal — never on previously accrued interest. The formula is:
I = P × r × t
Where I is the interest, P is the principal, r is the annual rate (as a decimal) and t is the time in years. The total amount is A = P + I = P(1 + rt).
Worked example
$5,000 at 6% simple interest for 3 years:
Interest: 5,000 × 0.06 × 3 = $900.
Total amount: 5,000 + 900 = $5,900.
Per year: $300 each year, unchanged.
Simple vs compound interest
With simple interest the yearly charge is constant, so the total grows in a straight line. Most savings accounts, credit cards and mortgages instead use compound interest, where interest is added to the balance and itself earns interest. Simple interest is common for short-term loans, some car loans and bonds that pay a fixed coupon.
Tip: if the time is given in months or days, convert it to years first — for example 9 months = 0.75 years, or 90 days ≈ 0.2466 years (90 ÷ 365).