Simple Interest Definition
Simple Interest is the method to calculate the interest where we only take the principal amount each time without changing it with respect to the interest earned in the previous cycle.
In simple terms, we can say that simple interest is the interest earned only because of the principal amount whereas compound interest is the interest earned on both principal and the previous interest earned.
Let us suppose we invest 100 rupees for 2 years at a rate of 10% for both simple interest and compound interest. Then for simple interest, the interest is calculated for 10% of 100 for the first year and similarly 10% of 100 for the second year.
Now for compound interest for the first year, the interest earned is the same 10% of 100 but for the second year, we take into account the interest earned in the previous year i.e. the interest earned in the second year is 10% of (100 + 10% of 100). Thus, we see that generally for the same terms compound interest is greater than simple interest.
Simple Interest
Simple Interest is the interest paid on the principal amount for which the interest earned regularly is not added to the principal amount as we do in compound interest.
Let’s learn more about Simple Interest in detail, including its formula and examples.
Table of Content
- Simple Interest Definition
- Simple Interest Formula
- How to Find Simple Interest?
- Simple Interest vs Compound Interest
- Applications of Simple Interest
- Simple Interest Solved Questions