1. What is Simple Interest?

Simple interest is a method of calculating interest where the interest is computed only on the original principal amount throughout the term of the loan or investment. It's commonly used for short-term loans and savings accounts in the UK.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Balance \) — Initial amount in GBP
• \( Rate \) — Annual interest rate in decimal form
• \( Time \) — Time period in years

Explanation: The formula calculates how much interest you'll earn (or owe) based on your initial balance, the interest rate, and the time period.

3. Importance of Interest Calculation

Details: Understanding interest calculations helps you compare savings accounts, plan your finances, and make informed decisions about loans and investments.

4. Using the Calculator

Tips: Enter your balance in GBP, interest rate as a decimal (e.g., 0.05 for 5%), and time in years. 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. For example, 3.5% becomes 0.035.

Q3: Is this calculator suitable for mortgages?
A: No, UK mortgages typically use compound interest. This calculator is for simple interest products.

Q4: What are typical UK savings account rates?
A: As of 2023, easy-access savings accounts typically offer 0.5%-3% while fixed-term accounts may offer up to 5%.

Q5: Are interest earnings taxable in the UK?
A: Yes, but you have a Personal Savings Allowance (£1,000 for basic rate taxpayers, £500 for higher rate).