**What is interest?**

**Interest**is the cost of borrowing money, where the borrower pays a fee to the lender for the loan. There are two basic types of interest:

**simple and compound.**

**What is simple interest?**

**Simple interest** is **interest** calculated on the principal portion of a loan or the original contribution to a savings account. **Simple interest does** not compound, meaning that an account holder will only gain **interest** on the principal, and a borrower will never have to pay **interest** on **interest** already accrued.

Generally, **simple interest** paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent.

## Simple Interest Formula

**I = PRT**

Where:

- P = Principal Amount (the amount of money saved or borrowed)
- I = Interest Amount the money paid out when the money is saved or borrowed, it is the fee for using or saving the money)
- R = Rate of Interest (usually written as percent but must be converted to a decimal to be used in calculations)
- T = Time Period usually in years

Notes: Base formula, written as I = PRT or I = P × R × T where rate R and time T should be in the same time units such as months or years.

## Different Versions of the Same Formula

What is being calculated determines how the formula is used.

- Calculate Interest, solve for I
- I = PRT

- Calculate Principal Amount, solve for P
- P = I / RT

- Calculate rate of interest in decimal, solve for r
- R = I / PT

- Calculate rate of interest as a decimal
- R = R /100

- Calculate time, solve for t
- T = I / PR