Simple interest over multiple years
If money is left in a bank or building society for more than one year, then the amount of interest earned has to increase.
Remember - this is simple interest. It is different from compound interest.
Here's an example of how to calculate simple interest over multiple years:
Example
Darren leaves \(\pounds350\) in his building society account for 3 years. The account paid interest at a rate of \(8\%\) per annum. How much does he have in his account after three years?
Interest in one year \( = 8\%\,of\,\pounds350\)
\(=\frac{8}{100}\times 350\)
\(=\pounds28\)
Interest in three years \(= 3 \times 28\)
\(= \pounds84\)
New balance
\(= 350 + 84\)
\(= \pounds434\)
After three years Darren will have \(\pounds434\) in his account.
Now try this question:
Question
Morag earns \(4.5\%\) interest per year on the money she has saved in her bank account.
She starts off with \(\pounds200\).
How much is in her account after five years?
Interest for one year\( = 4.5\%\,of\,\pounds200\)
\(=\frac{4.5}{100} \times 200\)
\(= \pounds9\)
Interest for five years \(= 5 \times \pounds9\)
\(=\pounds45\)
New balance:
\(= 200 + 45\)
\(= \pounds245\)
After five years Morag will have \(\pounds245\).