Does this $500 earn any interest?
Brokers that directly give interest (e.g. Interactive Brokers)
This is not dependent on whether the $500 came from shorting stock or depositing money.
A broker gives you interest based on the cash balance (tiers) alone.
Brokers that participate in "FDIC Deposit","Money Market", or "Sweep" program (e.g. Charles Schwab) and indirectly give interest
In some cases, the full proceed from short sale does not get interest. In other cases, only the initial/minimum margin requirement from short sale does not get interest.
If your broker does not give you interest on any cash balance, you may buy iShares Short Treasury Bond ETF (SHV) with such balance if your leverage still permits.
pay the broker interest
Strictly speaking, borrowing rate of each stock is not called "interest". Short selling a stock, even for SPY that could be easily borrowed, costs "borrowing rate". Each stock's borrowing rate is different. The harder to borrow, the higher the borrowing cost.
If Borrowing Rate > Interest Earned on Cash Balance, then you are paying a net cost.
Furthermore, Short Selling a stock will cost you "Payment In Lieu of a Dividend" if you held a stock right before a Ex-Dividend date. Cash will be deducted from your account.