Simple interest is the original form of the idea: a fee charged on a fixed principal, unchanged for the life of the arrangement. The interest that accrues is paid out or set aside rather than added to the balance, so it never generates interest of its own. That single restriction is what separates it from compound interest, and it is the reason the two diverge more and more the longer money is left alone.
It remains in use wherever predictability is worth more than growth. Short-term notes, interest-only arrangements, some personal instalment loans in markets that regulate interest closely, court judgements in jurisdictions that prohibit charging interest on unpaid interest, and the simplified bond structures taught in introductory finance. Anywhere the parties want a number that can be computed on the back of an envelope without a calculator, simple interest wins on transparency.
interest = principal × annual rate ÷ 100 × years
total = principal + interest
The rate field is labelled as an annual rate and is taken as a decimal fraction of one year, so a rate of 5 with a term of 6 months means five per cent per year for half a year, not five per cent per month. Time is entered in years and accepts halves and quarters, so 18 months must be entered as 1.5. The tool reports the interest and the total separately, which matters because the second figure is what actually leaves or arrives.
Nothing is deducted anywhere: no tax withholding, no fees, and no inflation adjustment. The output is gross nominal interest.
The defaults. 10,000 at 5 per cent for 3 years: interest is 10,000 × 0.05 × 3 = 1,500.00 and the total is 11,500.00. Each year contributes the same 500, and each year's accrual is identical to the first.
A fractional term. 8,000 at 4.5 per cent for 2.5 years: the annual interest is 8,000 × 0.045 = 360, so the total interest is 360 × 2.5 = 900.00 and the total is 8,900.00. Halving the final year halves the final year's interest, exactly, because the accrual is linear in time.
The cost of not compounding. The same 10,000 at 5 per cent for 3 years with annual compounding grows to 10,000 × 1.05³ = 11,576.25, or 1,576.25 of interest. Simple interest gives 1,500. The gap is 76.25 over three years, about five per cent of the interest itself. Over thirty years instead of three, that same structural difference becomes most of the return, which is why the choice between the two conventions is trivial at short tenors and decisive at long ones.
As a borrower on an amortising loan, simple interest is exactly what you want, because interest is not charged on interest you have not paid. As a saver over any long horizon, it is worse than compounding at the same nominal rate, and the gap widens with time.
Divide by twelve. Eighteen months is 1.5, nine months is 0.75, and four months is 0.3333. Because the field steps in halves, twenty-four months is easiest entered as 2.
Because the accrual is linear and the principal is unchanged. Unlike compounding, year two earns nothing on year one's interest, so the annual figure is constant by design rather than by coincidence.
Then this page describes your arrangement exactly. Removing the interest is precisely what keeps the accrual linear, so an interest-only account that pays out monthly behaves like this model.
Run the same principal, rate and term through both. The difference is the value of reinvestment, and seeing it laid out side by side is the fastest way to understand why the distinction is made at all.