Compound rates charge interest on the principal and on previously earned interest. For instance, if you borrow $100 at a rate of 10 percent for a term of two years, you’ll owe interest of $10 at the end of the first year and $11, or interest on the first year’s total of $110, at the end of two years, bringing the total interest owed to $21. A fixed rate is the most common form of interest for consumers, as they are easy to calculate, easy to understand, and stable - both the borrower and the lender know exactly what interest rate Simple interest. Simple interest is, maybe not surprisingly, simple to calculate. Here’s the formula for calculating simple interest: Principal x interest rate x n = interest. To show you how interest is calculated, assume someone deposited $10,000 in the bank in a money market account earning 3 percent (0.03) interest for 3 years.