Simple interest (einfacher Zins)
Simple interest is interest calculated on the original principal only, every period, with no interest charged on previously earned interest. Einfacher Zins (simple interest) produces a fixed euro amount per period and grows in a straight line over time — €1,000 at 3% per year always adds €30 in year one, year two, and year three, never more.
Why it matters
Simple interest shows up wherever a contract deliberately avoids compounding: short-term deposits held for less than a year, per-diem Verzugszinsen (default interest charged on late payments) and overdraft interest calculated day by day, and bond coupons quoted as a flat percentage of face value per year. Reading these correctly means recognizing that the interest amount stays constant in euros, not that it recalculates on a growing base.
The distinction matters most when a rate is quoted "per year" but applied over a shorter or longer stretch. A per-diem penalty rate on a late Miete (rent) payment, for example, is a form of simple interest applied to a fixed principal for the exact number of days overdue — no compounding kicks in partway through the month.
Worked examples
1. Three-year deposit. €1,000 earns an illustrative 3% per year in simple interest (not a current market rate). Interest is €1,000 x 0.03 = €30 in year one, another €30 in year two, and another €30 in year three — a flat €90 total after three years, and a balance of €1,090. Each year's interest is calculated on the same €1,000 principal, not on the growing balance.
2. Comparing the trajectory to compounding. The same €1,000 at the same illustrative 3% but compounded annually would reach €1,000 x 1.03^3 ≈ €1,092.73 after three years — about €2.73 more than simple interest's €1,090. The gap is small over three years at a low rate, but it widens every additional year and at every higher rate, because compounding lets interest earn interest.
3. Reading a per-diem rate. A Verzugszinssatz (default interest rate) is quoted at an illustrative 9% per year on a €500 overdue invoice, applied for 30 days. Daily simple interest: €500 x 0.09 / 365 x 30 ≈ €3.70. The calculation always uses the original €500, not a balance that grows day to day.
Don't confuse with
Compound interest calculates each period's interest on the current balance, which already includes previously earned interest — so the growth curve bends upward (exponential) instead of running in a straight line (linear). Over short periods and small amounts, the two look almost identical; over years or decades, compounding pulls noticeably ahead because it is, in effect, "interest on interest." A contract that says "interest compounds annually" or "monthly" uses compound interest; one that says "interest per annum, non-compounding" or specifies a flat per-diem rate uses simple interest.
Check yourself
€1,000 earns an illustrative 3% per year in simple interest. How much total interest, in euros, has accumulated after 3 years?
A late invoice of €500 carries an illustrative 9% per year default interest rate (Verzugszinssatz), applied for 30 days. Approximately how much interest, in euros, is owed?
€1,000 is invested for 10 years at the same illustrative 3% per year, once under simple interest and once under interest compounded annually. Which balance is larger after 10 years?