Simple Interest

Interest is extra money added every year (or month) to an original amount of money
Simple interest is interest that is the same amount each time
- It can be good: for example, putting £100 into a bank account and the bank rewarding you with simple interest of 10% every year
  - After one year you’d have £110, after two years you’d have £120, …
- It can be bad: for example, owing £100 to a friend and they charge you simple interest of 10% for every year you don’t pay them back
  - After the first year you’d owe them £110, after the second year you’d owe them £120, …
If £P is your initial amount of money and simple interest is added to it at a rate of R% per year for T years, then the total amount of interest gained, £I, is given by the formula

$I = \frac{P R T}{100}$

Remember that this formula calculates the amount of simple interest added over T years, not the total amount of money after T years
- To find the total amount of money after T years, add the interest £I to the original amount £P

Exam questions will state “simple interest” clearly in the question, to avoid confusion with compound interest
Pay attention to how some questions want the final answers (for example, to the nearest hundred)

A bank account offers simple interest of 8% per year. I put £250 into this bank account for 6 years. Find

(a) the amount of interest added over 6 years,

(b) the total amount in my bank account after 6 years.

(a) Substitute P = 250, R = 8 and T = 6 into the formula $I = \frac{P R T}{100}$ to find the simple interest, I

$I = \frac{250 \times 8 \times 6}{100} = 120$

The amount of interest over 6 years is £120

(b) The total amount after 6 years is the original amount, £250, plus the interest from part (a), £120

250 + 120

The total amount in my bank account after 6 years is £370

Simple Interest (Cambridge O Level Maths)