What Is Simple Interest?
Simple interest is calculated as a fixed percentage of the original principal amount for each period, using the formula I = P × r × t (principal × rate × time). Unlike compound interest, it never earns interest on previously accumulated interest, so it grows at a constant, linear rate rather than accelerating.
Example
A $1,000 loan at 5% simple annual interest for 3 years accrues 1,000 × 0.05 × 3 = $150 in interest, regardless of when during those 3 years the interest is calculated.