When you deposit money in a bank account, the bank pays you interest for the right to use your money.
Earning Interest An account earns interest at regular intervals, such as yearly, monthly, or weekly. The length of time is the interest period.
The amount of money deposited in an account is the principal. The balance of an account is the sum of the principal and the accumulated interest.
Simple Interest Simple interest is interest paid only on an account's principal. Simple interest is calculated as a percent of the principal. The percent is the interest rate.
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Time t is the length of time the money is in the account. When the interest rate r is an annual interest rate, t is in years.