Simple Interest
Interest calculated only on the original principal, never on interest already earned.
Simple interest pays (or charges) the same dollar amount each period, because it's always calculated on the original principal — not on any interest that has accumulated. It's straightforward but rare in practice for savings and investments, where compounding is the norm; it shows up more often in certain short-term loans and bonds.
Worked Example
$5,000 at 4% simple interest earns exactly $200 every year, for as long as the money sits there — never more, because interest never earns interest.
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