The interest that is applied only to an initial amount of money is called simple interest. The initial amount is known as the principal. Simple interest is calculated as a product of principal, annual interest rate, and the time in years. An interest rate is a percent used to calculate the interest on the principal. It may be easier to write it in decimal form to make the calculations easier. For instance, assume that a savings account earns $3\%$ simple interest per year on a deposit of $\$1000.$ This means that the simple interest earned on $\$1000$ in one year is $\$30.$ The final amount of money in the account is called the balance. The following table shows the balance over five years of an account that earns $3\%$ simple interest each year.

Years	Amount of Simple Interest	Balance
$1$	$1000\cdot 0.03\cdot 1=\$30$	$1000+30=\$1030$
$2$	$1000\cdot 0.03\cdot 2=\$60$	$1000+60=\$1060$
$3$	$1000\cdot 0.03\cdot 3=\$90$	$1000+90=\$1090$
$4$	$1000\cdot 0.03\cdot 4=\$120$	$1000+120=\$1120$
$5$	$1000\cdot 0.03\cdot 5=\$150$	$1000+150=\$1150$

Notice that the balance at the end of each period is calculated by adding the principal and simple interest earned during that period.