Simple Interest
What is simple interest?
- Interest is money that is regularly added to an original amount of money
- This could be added yearly, monthly, etc
- When saving money, interest helps increase the amount saved
- With debt, interest increases the amount owed
- Simple interest refers to interest which is based only on the starting amount
- Each interest payment (or charge in the case of debt) will be the same
- To find the total simple interest earned
- Find a percentage (the percentage rate) of the starting amount
- Use a multiplier to do this (e.g. 0.05 to find 5%)
- Multiply this by the number of time periods (e.g. years) it is being applied for
- Find a percentage (the percentage rate) of the starting amount
- To find the total amount (or balance) after the simple interest has been earned
- Use the same method as above, and add this on to the starting amount
Examiner Tip
- Double check:
- Does the question ask for the interest earned, or the total amount at the end?
- Do you need to round your answer? (e.g. to the nearest hundred)
Worked example
A bank account offers simple interest of 4% per year. Nigel puts £ 250 into this bank account, and leaves it to earn interest for 6 years.
Find 4% of £ 250 using a multiplier
Worked example
Noah invests £ 9000 at a rate of simple interest per year, for 5 years. At the end of 5 years there is £ 11 700 in the account. Find the value of .
Find the total amount of interest earned over the 5 years
11 700 - 9 000 = £ 2 700 total interest
As we are dealing with simple interest, the same amount of interest is earned each year
Find the interest earned each year
2 700 ÷ 5 = £ 540 interest per year
Find what percentage of the original amount this represents
£ 540 is 6% of the original £ 9000