## Using the simple interest calculator

**Deposit**- Initial money in your bank account, also known as principal.**Interest Rate**- Annual interest rate.**Years**- The duration of investment (e.g. 5 years).**ROI**- Return on investment.

## Simple interest formula

Simple interest can be calculated by multiply principal, interest rate and time periods.

Its formula is:

**Simple interest = P * r * t**

- P is principal
- R is annual interest rate
- T is years

## Simple interest *vs* compound interest

In simple interest, only principal makes money(earns interest), whether your investment lasts one year or ten years.

In compound interest, not only principal earns interest, but also interest earned in previous period will earn interest in the following periods.Â Compound interest is used more popularly Â in our real life, like credit card, saving and checking account, and mortgage loan.

For example, $10,000 at 8% annual interest rate,Â compounded annually for 10 years.Â Calculate its simple interest and compound interest.

Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |

Annual simple interest | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 | $800 |

Annual compound interest | $800 | $864 | $933.12 | $1,007.77 | $1,088.39 | $1,175.46 | $1,269.50 | $1,371.06 | $1,480.75 | $1,599.20 |

Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |

Total simple interest | $800 | $1,600 | $2,400 | $3,200 | $4,000 | $4,800 | $5,600 | $6,400 | $7,200 | $8,000 |

Total compound interest | $800 | $1,664 | $2,597.12 | $3,604.89 | $4,693.28 | $5,868.74 | $7,138.24 | $8,509.30 | $9,990.05 | $11,589.25 |