1. What is Simple Interest?

Simple interest is a method of calculating the interest charge on a loan or savings based on the original principal amount. Unlike compound interest, simple interest does not accumulate on previously earned interest.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( I \) — Interest earned (currency)
• \( P \) — Principal amount (currency)
• \( r \) — Interest rate (decimal)
• \( t \) — Time period (years)

Explanation: The formula calculates the interest earned by multiplying the principal amount by the interest rate and the time period in years.

3. Importance of Interest Calculation

Details: Understanding interest calculations helps individuals make informed decisions about savings, investments, and loans. It enables better financial planning and wealth management strategies.

4. Using the Calculator

Tips: Enter the principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 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 accumulated interest.

Q2: How do I convert percentage to decimal?
A: Divide the percentage by 100. For example, 5% becomes 0.05, 3.25% becomes 0.0325.

Q3: Can I calculate interest for partial years?
A: Yes, enter time as a decimal. For example, 6 months = 0.5 years, 3 months = 0.25 years.

Q4: Is this calculator suitable for all types of savings accounts?
A: This calculator uses simple interest, which is common for some basic savings accounts. Many modern accounts use compound interest.

Q5: What factors affect interest rates on savings accounts?
A: Interest rates are influenced by central bank policies, inflation, economic conditions, and the financial institution's policies.