📖 The Formula
Simple interest is money earned on savings — or money owed on a loan. The GED gives you the formula on the formula sheet. You just have to plug in the right numbers.
Breaking it down in plain language:
P — Principal
The starting amount of money
If you borrow $2,000 or deposit $2,000 into a savings account — that $2,000 is the principal.
R — Rate
The annual interest rate
A rate of 5% means you earn (or owe) 5% per year. Use the percent button on your calculator — it handles the conversion automatically.
T — Time
Must always be in years
If the problem gives time in months, divide by 12 first. This is the step most students skip — and it causes the most wrong answers.
I — Interest
The extra money earned or paid
The formula gives you the interest only — not the total balance. If the question asks for the total, add the interest back to the principal.
⏱️ The Hidden Step: Convert Months to Years
This is the most important thing to know about simple interest on the GED. The formula only works when time is in years. But the GED almost always gives you time in months — and it's often a number that doesn't divide into a whole year.
⚠️ Most common mistake: Plugging the months directly into the formula without converting. If the problem says 30 months, you cannot use T = 30. You must convert first.
Here are the common month values you'll see on the GED:
| Months | Years (÷ 12) |
|---|
| 6 months | 0.5 years |
| 15 months | 1.25 years |
| 18 months | 1.5 years |
| 24 months | 2 years |
| 27 months | 2.25 years |
| 30 months | 2.5 years |
| 33 months | 2.75 years |
| 36 months | 3 years |
| 42 months | 3.5 years |
| 48 months | 4 years |
| 54 months | 4.5 years |
| 60 months | 5 years |
✓ Calculator tip: You can divide any month value by 12 on the GED calculator. Just type months ÷ 12 = to get the time in years, then continue with the formula.
🔍 Interest Only vs. Total Amount
Before you answer, read the question carefully. There are two different things a GED question might ask for — and they require different final steps.
Question asks for Interest Only
"How much interest does she earn?"
Just use the formula and stop:
Answer = I = P × R × T
Question asks for Total Amount
"What is the total amount in the account?"
Calculate interest, then add it to the principal:
Answer = P + I
Watch out for this trap: The formula gives you the interest, not the final total. If the question asks for the total amount, don't stop at I — add the interest back to the principal.
🖩 Calculator Strategy
The GED calculator has a percent button. Use it. It avoids the mistake of converting percents to decimals incorrectly.
Calculator Method
Type: Principal × Rate% × Time =
Example: P = $1,000 R = 6% T = 2.5 years
On calculator: 1000 × 6% × 2.5 =
Result: $150
If you prefer decimals: 6% = 0.06 | 4% = 0.04 | 8.5% = 0.085
Divide the percent by 100 to convert. But the percent button is faster and less error-prone.
🔢 Worked Examples
Example 1 — Interest Only, Time Already in Years
A savings account earns 4% annual simple interest on a $3,000 deposit. How much interest is earned in 3 years?
IdentifyP = $3,000 | R = 4% | T = 3 years
Question asks forInterest only → use I = PRT
CalculateI = 3,000 × 4% × 3 = 3,000 × 0.04 × 3
I = $360
Example 2 — Convert Months First
Maria borrows $2,400 at 5% annual simple interest for 18 months. How much interest does she owe?
Convert time18 months ÷ 12 = 1.5 years
IdentifyP = $2,400 | R = 5% | T = 1.5 years
CalculateI = 2,400 × 0.05 × 1.5
I = $180
Example 3 — Total Amount (Add Interest Back)
James invests $5,000 at 3% annual simple interest for 27 months. What is the total amount in the account after 27 months?
Convert time27 months ÷ 12 = 2.25 years
Calculate interestI = 5,000 × 0.03 × 2.25 = $337.50
Question asks for totalTotal = P + I = $5,000 + $337.50
Total = $5,337.50
Example 4 — Awkward Month Conversion
A loan charges 8% annual simple interest on $1,200. The loan runs for 42 months. What is the total amount owed?
Convert time42 months ÷ 12 = 3.5 years
Calculate interestI = 1,200 × 0.08 × 3.5 = $336
Total amountTotal = $1,200 + $336
Total = $1,536
🎯 GED Strategy: 4 Steps Every Time
Before touching the formula, answer these 4 questions:
1. What is the principal (P)?
The starting amount of money.
2. What is the rate (R)?
The annual percentage rate.
3. What is the time — and is it in years?
If it's in months: divide by 12 first.
4. What is the question asking for?
Interest only → stop at I = PRT
Total amount → add I to P
✏️ Practice Questions