The definition of simple interest is the extra amount of money derived from a financial application after a given period and at a given interest rate. This rate is usually expressed as a percentage and is set for fixed periods of time, normally yearly periods, but special applications may have shorter or longer interest calculation periods. For a better understanding, most financial institutions
. may also provide the interest rates converted to yearly periods.Simple interest is one of the most simple financial calculations, as it only depends on three known factors: Initial capital, interest rate and time. It is commonly used to demonstrate potential gains of a savings account or the extra amount to pay on borrowed money.To calculate the simple interest (I) of a given application, the initial capital (C) is multiplied by the interest rate (R) converted to decimal form and the time (T), expressed in number of periods. Most banks pay interest only of complete periods to avoid early withdrawals, so it is necessary to take this factor into account when determining the time for calculations. Calculating interest is thus expressed as I=CxRxT.As a quick example, to calculated the simple interest earned after six years on 500 dollars put in a bank account that earns 5 percent interest yearly, is a simple matter of multiplying all the numbers provided: 500 USD x 5% x 6 years = 150 USD. This means that after six years at 5 percent, yields 150 USD. For borrowed money, the calculations are the same, but the yield is paid to the bank.Normally banks provide information about interest rates before commissions and taxes to make their savings accounts look much more appealing. To accurately calculate the simple interest gained or payable, it is necessary to know exactly what the final interest rate is. More reference links: http://www.learningwave.com/lwonline/percent/interest.html http://easycalculation.com/simple-interest.php
