1. What is Simple Interest?

Simple interest is a method of calculating the interest charge on a loan or investment based on the original principal amount. It's commonly used for short-term loans and savings accounts.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal amount (initial investment)
• \( r \) — Annual interest rate (in decimal form)
• \( t \) — Time period in years

Explanation: The formula calculates how much interest you'll earn on a savings account based on your initial deposit, the interest rate, and how long you keep the money in the account.

3. Importance of Interest Calculation

Details: Understanding interest calculations helps you compare savings accounts, plan your finances, and estimate your investment growth over time.

4. Using the Calculator

Tips: Enter the principal amount in dollars, interest rate as a percentage (e.g., 3.5 for 3.5%), and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.

Q2: Are savings accounts typically simple or compound interest?
A: Most savings accounts use compound interest, but this calculator provides simple interest as a basic calculation.

Q3: How often is interest typically paid on savings accounts?
A: Interest is usually compounded daily or monthly and paid monthly or quarterly, depending on the account.

Q4: Do banks use simple interest for any products?
A: Some short-term loans or certificates of deposit (CDs) may use simple interest calculations.

Q5: How can I calculate compound interest?
A: Compound interest requires a more complex formula that accounts for compounding periods: \( A = P(1 + r/n)^{nt} \).