Interest, Growth and Decay

Number

Interest is money added to a sum at regular intervals, increasing savings or increasing a debt
Simple interest is worked out on the starting amount alone, so the same payment recurs every period
The balance grows by equal steps, which is what separates it from compound interest

Find the stated percentage of the starting amount to get one period's interest
Multiply by the number of periods for the total interest
Add that total to the starting amount only if the question asks for the final balance

Worked example

Simple interest over several years

£4500 is invested at 3% simple interest per year for 7 years. Find the total interest earned and the final balance.

Solution:

Simple interest is worked out on the starting amount every year, so each year earns exactly the same
One year's interest is 3% of £4500
3% as a decimal is 0.03, so the interest is 0.03 × 4500 = £135
That same £135 is added in each of the 7 years, so the interest never grows
Total interest = 135 × 7 = £945
The balance is the original sum plus the interest it has earned
Final balance = 4500 + 945 = £5445
Read the question carefully: the interest (£945) and the balance (£5445) are different answers, and each is asked for separately
Money answers are given to two decimal places, so £945 would be written £945.00 if pence were needed