1. What is Simple Interest?

Simple interest is a method of calculating interest where the interest is computed only on the original principal amount throughout the entire term of the loan or investment.

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 in years
• \( FV \) — Future value of the investment

Explanation: The formula calculates the total amount you will have after interest is added to your original investment.

3. Importance of Savings Calculation

Details: Understanding how your savings grow helps with financial planning, setting realistic goals, and comparing different investment options.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is simple interest different from 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: When is simple interest typically used?
A: Simple interest is commonly used for short-term loans, car loans, and some savings accounts.

Q3: What are the limitations of simple interest?
A: It doesn't account for the effect of compounding, which can significantly affect long-term investments.

Q4: How do I convert APR to a decimal for calculations?
A: Divide the percentage rate by 100 (e.g., 5% becomes 0.05).

Q5: Can this calculator be used for loans?
A: Yes, it can calculate the total repayment amount for simple interest loans.