Finance
Simple Interest Calculator
Work out simple interest and the total amount from principal, rate, and time.
Result
Enter your numbers and press Calculate to see the result.
Calculating…
How simple interest works
Simple interest is always calculated on the original principal, never on interest you have already earned. That makes it easy to predict: you earn (or pay) the same fixed amount every year for the whole term. It is the opposite of compound interest, where each period's interest is added to the balance and then earns interest of its own.
Formula
I = P × r × t and A = P + I = P(1 + r × t)
where I is the interest, P the principal, r the annual rate as a decimal (5% = 0.05), t the time in years, and A the total amount at the end.
Worked example
$10,000 at 5% simple interest for 5 years:
- Interest: 10,000 × 0.05 × 5 = $2,500
- Total amount: 10,000 + 2,500 = $12,500
- Each year adds a flat $500, so the balance rises in a straight line.
Simple and compound, side by side
| Simple | Compound | |
|---|---|---|
| Interest | I = P × r × t | I = P(1 + r/n)^(nt) − P |
| Final amount | A = P(1 + rt) | A = P(1 + r/n)^(nt) |
| Shape of growth | A straight line | A curve that steepens |
| Interest each year | The same every year | Larger every year |
The whole difference is the exponent: simple interest multiplies by time, compound interest raises to the power of time.
The same $5,000 both ways
At 8% over 3 years:
| Year | Simple — interest | Simple — balance | Compound — interest | Compound — balance |
|---|---|---|---|---|
| 1 | $400.00 | $5,400.00 | $400.00 | $5,400.00 |
| 2 | $400.00 | $5,800.00 | $432.00 | $5,832.00 |
| 3 | $400.00 | $6,200.00 | $466.56 | $6,298.56 |
A difference of $98.56 after 3 years — small enough to ignore, which is the point. Run the same figures out to 20 years and simple interest gives $13,000 against compound's $23,305. The gap goes from 1.6% of the balance to 79%.
Why simple interest favours the borrower
On money you owe, simple interest is generally the better deal. Interest never accrues on unpaid interest, so paying early reduces the total directly and a late month costs you the interest and nothing more. There is no compounding penalty stacking on top.
On money you are owed the logic reverses. Lending to a bank, you want compounding, and as frequently as you can get it — though frequency is a far smaller lever than the rate itself. The full comparison, including which products use which, is on the compound interest calculator.
Where simple interest is used
- Car loans and many short-term personal loans.
- Some bonds and treasury instruments that pay a fixed coupon.
- Certain savings products and informal loans between people.
Most mortgages, credit cards, and long-term deposits use compound interest instead — check which one applies before comparing offers.
Simple Interest Calculator — frequently asked questions
How is simple interest calculated?
Simple interest uses the formula I = P × r × t, where P is the principal, r the annual rate as a decimal, and t the time in years. For example, $10,000 at 5% for 5 years earns $10,000 × 0.05 × 5 = $2,500 in interest.
What is the difference between simple and compound interest?
Simple interest is always calculated on the original principal only, so you earn the same amount every year. Compound interest is calculated on the principal plus previously earned interest, so it grows faster over time. Use the compound interest calculator to compare.
Where is simple interest used?
Simple interest is common on short-term and car loans, some personal loans, and certain bonds and savings products. Many everyday loans, mortgages, and credit cards use compound interest instead.
What is the total amount at the end?
The total (or maturity) amount is the principal plus the interest earned: A = P + I = P(1 + r × t). The calculator shows both the interest and this final total.