Simple Interest Calculations

Simple interest is the amount of money paid or earned for using money. When you deposit money in a savings account or take out a loan, interest comes into play. The basic formula is I = prt, where I stands for interest, p for principal (the starting amount), r for rate (as a decimal), and t for time in years.

To find the final account balance, just add the interest to the principal amount. For example, if you deposit $250 at 4% interest for 3 years, the calculation would be I = 250 × 0.04 × 3 = $30. Your final balance would be $280.

Time periods less than a year need to be converted to decimal form. For 9 months, you'd use 0.75 years (9÷12). With $3,000 at 2% interest for 9 months, the calculation is I = 3000 × 0.02 × 0.75 = $45, making the final balance $3,045.

💡 Remember that the interest rate must always be converted to a decimal by dividing by 100. For example, 3.5% becomes 0.035 in the formula.