Mental Simple Interest Calculations

Simple Interest Formula

I = P × R × T

Where:

• I = Interest earned
• P = Principal (starting amount)
• R = Rate (as decimal: 5% = 0.05)
• T = Time (in years)

Mental Shortcuts

1% for 1 year:

• Interest = Principal ÷ 100
• $5,000 at 1%: Interest = $50

5% for 1 year:

• Interest = Principal ÷ 20
• $4,000 at 5%: Interest = $200

10% for 1 year:

• Interest = Principal ÷ 10
• $3,000 at 10%: Interest = $300

Building Up

Example: $2,000 at 6% for 3 years

Method 1 (Step by step):

1. 1% of $2,000 = $20
2. 6% = 6 × $20 = $120 per year
3. 3 years = 3 × $120 = $360

Method 2 (All at once):

• I = 2,000 × 0.06 × 3
• = 2,000 × 0.18
• = $360

Common Rates

2% per year:

• Divide by 50
• $5,000: $5,000 ÷ 50 = $100/year

4% per year:

• Divide by 25
• $2,500: $2,500 ÷ 25 = $100/year

8% per year:

• Find 10%, subtract 2%
• $1,000: 10% = $100, 2% = $20, so 8% = $80/year

Finding Principal

If you know I, R, and T: P = I ÷ (R × T)

Example: Earned $300 at 5% for 2 years

• P = 300 ÷ (0.05 × 2)
• P = 300 ÷ 0.10
• P = $3,000

Finding Rate

If you know I, P, and T: R = I ÷ (P × T)

Example: $2,000 earned $240 in 3 years

• R = 240 ÷ (2,000 × 3)
• R = 240 ÷ 6,000
• R = 0.04 = 4%

Finding Time

If you know I, P, and R: T = I ÷ (P × R)

Example: $5,000 at 6% earns $900

• T = 900 ÷ (5,000 × 0.06)
• T = 900 ÷ 300
• T = 3 years