In a world full of finances, any person can benefit from learning what interest is, how it applies in certain backgrounds, and how to calculate it. For example, taking out a loan to cover expenses could produce a lot or a little interest depending on the interest rate and how the person calculates the amount. Understanding simple interest vs. compound interest could save you money or earn you more money.
Simple Interest is the interest earned on a principal amount over a time period. In other words, you invest or borrow money and you earn or owe money on that amount.
The interest is not added to the starting amount and reinvested, which is what compound interest is.
Here are two scenarios that can apply to simple interest:
Notice two important aspects:
Here is a video with examples.