Simple interest

Simple interest is calculated solely on the original principal for the entire period, using I = P × r × t (principal × annual rate × time in years). Because it ignores interest-on-interest, a balance grows in a straight line rather than the accelerating curve of compound interest. It is common in short-term loans and some bonds.

Example: $1,000 at 5% simple interest for 3 years earns $1,000 × 0.05 × 3 = $150.