Imagine that you have some money in your piggy bank. Let's say you have $100. If you leave that money in your piggy bank for a year, you might want to know how much money you will have at the end of the year. This is where simple interest comes in!
Simple interest is the amount of money you earn on the money you already have, called the principal. It's like a reward for saving your money. The interest is usually a percentage of the principal, and it's added to the principal to give you the total amount of money you have at the end of the year.
Let's say the bank gives you 5% interest on your 5 for every 105 in your piggy bank (5). This is called the total amount or the future value.
Simple interest is easy to calculate. To find out how much interest you will earn in a year, you just multiply the principal by the interest rate and the number of years:
Interest = Principal x Interest rate x Time
So in our example, the interest you earn in a year would be:
Interest = 5
That's it! You now know how to calculate simple interest.