Types of Interest

There are two types of interest

• Simple Interest
• Compound Interest

Simple Interest

Interest paid(earned) on only the original amount, or principal(borrowed) lent.

Compound Interest

Interest paid (earned) on any previous interest earned, as well as on the principal borrowed (lent).

Example of Simple Interest

Assume that you deposit $1,000 in an account earning 7% simple interest for 2 years. What is the accumulated interest at the end of the 2nd year?
SI = P0(i)(n) = $1,000(.07)(2) = $140