1. What is Simple Interest?

Simple interest is a quick method of calculating the interest charge on a loan or investment based on the original principal amount. For bank savings, it represents the earnings you receive for keeping your money in the account.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal amount (initial investment)
• \( r \) — Annual interest rate (in decimal form)
• \( t \) — Time period in days
• 365 — Number of days in a year

Explanation: The formula calculates the interest earned on a daily basis for a given principal amount at a specified annual interest rate.

3. Importance of Interest Calculation

Details: Understanding how interest is calculated helps you compare different savings accounts, predict your earnings, and make informed financial decisions about where to keep your money.

4. Using the Calculator

Tips: Enter the principal amount in USD, the annual interest rate as a decimal (e.g., 0.05 for 5%), and the time period in days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.

Q2: How do I convert APR to decimal?
A: Divide the percentage by 100 (e.g., 3.5% becomes 0.035).

Q3: Why divide by 365 in the formula?
A: This converts the annual rate to a daily rate since there are 365 days in a year.

Q4: Can I use this for loans?
A: Yes, this calculates simple interest which applies to some short-term loans, though most loans use compound interest.

Q5: How accurate is this for real bank accounts?
A: Many banks use daily compounding, so this gives a conservative estimate. Actual earnings may be slightly higher.