The formula for simple interest requires your initial principal balance, annual interest rate, and time in years. Say you put ...

The formula for simple interest requires your initial principal balance, annual interest rate, and time in years. Say you put a sum of $800 into a savings vehicle with a 5% annual simple interest ...

If you'd like to calculate a total value for principal and interest that will accrue over a particular period of time, use this slightly more involved simple interest formula: A = P(1 + rt).

Here's how the simple interest formula looks if the initial deposit is $1,000, the annual interest rate is 4% and the number of years is five. 200 = 1,000 x .04 x 5.

For example, if you borrow $1,000 from a friend and agree to pay 6% simple interest for two years, the formula above tells you that you'll pay $120 in total interest ($1,000 x 0.06 x 2).

Simple vs. Compound Interest: An Overview . Interest is defined as the cost of borrowing money. It can also be the rate paid for money on deposit, as in the case of a certificate of deposit.

For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest.

The formula for simple interest is principal times the interest rate times the period. Usually period is expressed as a fraction of 12. For example, one month of interest will be 1/12.