Simple Interest Calculator
Compute simple interest (I = P·r·t) and compare it with compound growth.
Inputs
Allowed range: 0 to 1000000000
Allowed range: 0 to 100
Allowed range: 0 to 100
Results
How it works
Simple interest is calculated only on the original principal: I = P × r × t, where r is the annual rate (decimal) and t is the time in years. Unlike compound interest, earned interest is never reinvested.
Complete guide
Simple interest is the oldest and most transparent way to price a loan or a deposit. The lender (or saver) earns a fixed percentage of the original principal each year, and that earned interest is paid out — never reinvested. Because nothing compounds, the math stays linear: doubling the time exactly doubles the interest, and doubling the rate exactly doubles the interest.
Use simple interest whenever you need a fast, defensible estimate for a short-term loan, an auto loan that quotes a flat finance charge, a Treasury bill held to maturity, or any bond whose coupon you spend rather than reinvest. It is also the right tool for late-payment fees, court-ordered judgments, and most consumer financing in jurisdictions that legally require simple-interest disclosures.
Worked example: deposit $10,000 at 5% simple interest for 5 years. Interest each year is $10,000 × 5% = $500, so total interest is $500 × 5 = $2,500 and the final balance is $12,500. Under annual compounding the same deposit grows to $10,000 × (1.05)^5 ≈ $12,762.82 — about $263 more. That gap widens dramatically with time: at 30 years simple interest produces $25,000 of growth, while compounding produces over $43,000.
How to use this calculator: enter the principal (the original amount), the annual rate as a percentage (not a decimal), and the time in years. We return the simple interest earned, the final balance, and — for comparison — what the same deposit would have grown to under annual compounding. The compounding-advantage line is the easiest way to see whether a product offering compounding is meaningfully better than a flat-interest alternative.
Common mistakes to avoid: confusing the annual rate with the monthly rate (always use the annual figure here), forgetting that simple-interest auto loans still apply payments to interest first, and assuming that a 5% simple-interest investment matches a 5% APY savings account — it does not, because APY already includes compounding.
Frequently asked questions
- When is simple interest used in practice?
- Short-term personal loans, some car loans, U.S. Treasury bills, most corporate bond coupons (which are paid out, not reinvested), late-payment penalties, and many court judgments. Most credit cards, mortgages, and savings accounts use compound interest instead.
- How does it differ from compound interest?
- Simple interest grows linearly because each period earns interest only on the original principal. Compound interest grows exponentially because each period earns interest on the principal plus all previously earned interest. Over long horizons the difference becomes enormous — this is the core of Albert Einstein's apocryphal 'eighth wonder of the world' quote.
- What is the formula?
- I = P × r × t, where P is principal, r is the annual rate expressed as a decimal (5% = 0.05), and t is time in years. Final balance = P + I = P × (1 + r × t).
- Can I use it for periods shorter than a year?
- Yes — enter the time as a fraction. Six months is 0.5, ninety days is 90/365 ≈ 0.247. The formula is unit-consistent as long as r and t share the same time base (here, years).