## Understanding simple interest and its calculation

Simple interest is often used for short-term investments (less than one year).

For bonds, term accounts, and sometimes certain crowdfunding or crowdlending platforms, the calculation of interest can differ. Indeed, depending on the choice of investment, the interest will be simple or compounded.

What are the differences?

For simple interest, the sum of interest received is determined by the initial amount invested, regardless of the investment period. Whether the investment lasts 12, 24, or 36 months, the annual interest remains the same. This is because the interest is calculated exclusively on the initial principal amount and is distributed at the conclusion of each year.

Are you curious about how to calculate simple interest?

Let's first examine the basic formula for simple interest:

`Vf = Vi × (1 + ρ/n)^(n×t)`

The formula for simple interest, expressed by Vf = Vi + (Vi·ρ·ᵅ), shows the growth of an investment or loan over a given period.

Here's what each term represents:

`Vf`

is the future value of your investment;`Vi`

indicates the initial value or principal amount;`ρ (rho)`

represents the annual interest rate, expressed as a percentage (for example, 5% would be 0.05);`ᵅ`

denotes the number of years of the investment.

The major difference between compound interest and simple interest lies in the calculation of interest: simple interest is calculated only on the initial capital, without taking into account the interest accumulated in previous years.