How does simple interest work? Interest of any kind, especially when it is being paid out to you, is great, because it means that your money is working for you. Let’s say you put $500 in a bank which gives you 5% interest. This is an annual interest rate (APR) which most of the time is calculated daily and posted monthly. The bank pays you for the use of your money. If you leave that $500 in the bank for an entire year, at the end of the year you will have earned $25 ($500 (deposit) x .05 (5% interest) = $25. Therefore, at the end of the year you now have $525 in your account without you lifting a finger. Check out the below Website to calculate simple interest.