Simple interest

A method of calculating and quoting interest which takes no account of interest on interest.

So the total interest for a given period is calculated simply by multiplying or dividing the simple annual interest rate by the relative length of the interest period.

Simple interest is the usual basis of quotation for periods up to and including one year.

Example

When the daily rate of GBP interest is quoted as 5.11%,

this means that the amount of interest per day is given by the quoted simple annual rate of 5.11%,

multiplied by 1 / 365 (to reflect one day in a 365 day year):

= 5.11% x 1 / 365

= 0.014% per day.

See also

• CertFMM
• Compound interest
• Day count conventions
• Interest
• LIBOR
• Money market
• Periodic rate of interest

Other links

Students: Simple solutions, The Treasurer, September 2013