Simple interest is a type of investment that offers low returns. The rates are typically fixed for the term of the loan, unlike compound interest. Interest is calculated by multiplying an amount of money by the rate or percentage per year. Unlike compound interest, simple interest only accumulates on the initial amount of money invested without any growth. Simple interest is often offered through credit cards and personal loans to attract customers with low-risk investments.
As a financial term, simple interest is interest that is calculated on the original sum for any year, without taking into account the effect of accumulated interest. This type of interest is calculated by multiplying the principal sum by the rate and time.