At 5% simple interest over 3 years, $5,000 earns $750 in total interest (5000 × 0.05 × 3). Your ending balance would be $5,750. Each year you earn exactly $250, and this amount doesn't change because simple interest is always calculated on the original principal only.

With simple interest at 5% for 3 years, $5,000 earns $750. With monthly compound interest at the same rate and period, you'd earn approximately $808, a difference of about $58. The gap grows larger with higher rates and longer time periods, but for a 3-year term the difference remains modest.

You might encounter simple interest on auto loans, personal loans, some treasury securities, and certain short-term certificates of deposit. If you're borrowing $5,000, simple interest means your interest charges are predictable and won't grow over time. Some peer-to-peer lending platforms and credit unions also use simple interest for smaller loan amounts.