Simple interest is 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: Simple interest calculation
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.
- Compound interest
- Compounding effect
- Day count conventions
- Effective annual rate
- Money market
- Nominal annual rate
- Periodic rate of interest
- Periodic yield
- Time value of money