What is the meaning of Simple interest?

If you earn' Simple interest' on money you deposit in a bank or use to purchase a certificate of deposit (CD), the interest is figured on the amount of your principal alone. For example, if you had $1, 000 in an account that paid 5% simple interest for five years, you'd earn $50 a year ($1, 000 x, 05 = $50) and have $1, 250 at the end of five years. In contrast, if you had been earning compound interest, you'd have $1, 276. 29 at the end of five years, since the interest you earned each year, as well as your principal, would have earned interest.