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How to calculate simple interest per annum

Updated March 23, 2017

Simple annual interest lets your principal investment grow at a fixed rate every year. In simple-interest calculations, no matter how much interest is accrued, you will earn only on the principal investment. This is in contrast to compounded annual interest, in which interest accrued also grows at the same rate. Calculating simple interest per annum is straightforward.

Divide the interest rate by 100 to convert it to decimal format. As an example, 8 per cent would be converted to 0.08.

Multiply the interest rate in decimal format to the principal investment. In the example, if you invested £6,500, then you would receive £520 in simple interest. If the interest rate is an annual rate, you would make £520 per annum.

Convert the simple interest earned into an annual figure, if the interest rate was something other than an annual rate. Do this by dividing the simple interest earned by the number of years the interest rate encompasses. In the example, if the 8 per cent interest rate is paid over five years, divide £520 by 5. The result is £104 per year.

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