Resources ❯ Accounting Terms

Simple Interest

[SIM-pul IN-tuh-rist]

What is the definition of Simple Interest?

Interest calculated solely on the initial principal amount of a loan or investment, without compounding on accumulated interest.

Using Simple Interest in an Example

For example, if you invest $1,000 at an annual simple interest rate of 5%, you would earn $50 in interest each year, resulting in a total of $150 in interest over three years.

Using Simple Interest in a sentence

When calculating the returns on the short-term bond, we used a simple interest formula since the interest does not compound.

Related Terms

Surviving Spouse

A person whose spouse has died within the tax year and who may file a joint tax return for that year. Additionally, the surviving spouse can file joint returns for the next two years if they remain unmarried and maintain a household as the principal residence for a dependent child.

Swap

A financial contract in which two parties agree to exchange streams of payments over a specified period, based on different indices such as interest rates, foreign exchange rates, or equity indices, applied to a notional amount. Swaps typically do not involve the exchange of principal.

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