Simple Interest Calculator

How simple interest works

Simple interest is calculated only on the original principal amount. The interest charge stays constant each period because the balance used in the formula never changes. Short-term personal loans, certificates of deposit with simple accrual, and some bonds use this method.

This calculator finds interest earned and total amount from principal, annual rate, and time. Enter the period in years, months, or days. To compare growth when interest compounds on prior earnings, use the compound interest calculator. For loan scenarios with amortizing payments, try the loan interest calculator or the personal loan calculator.

Simple interest formula

The standard simple interest formula expresses interest as a percentage of principal multiplied by time in years:

Where $P$ is the principal (initial amount), $R$ is the annual interest rate as a percentage, and $T$ is time expressed in years. The total amount is:

When the period is given in months or days, convert to years first: divide months by 12 or days by 365. This matches the conventional actual/365 day-count used in most simple interest examples.

Worked example

Suppose you invest $10,000 at 5% per year for 3 years using simple interest.

1. Time in years: $T = 3$.
2. Interest: $I = \frac{10{,}000 \times 5 \times 3}{100} = 1{,}500$
3. Total amount: $A = 10{,}000 + 1{,}500 = 11{,}500$.

For a 365-day period at the same rate, $T = 365/365 = 1$ year, so interest is $500 and the total is $10,500. Six months converts to $T = 6/12 = 0.5$ years, producing $250 in interest on $10,000 at 5%.

Simple interest vs compound interest

Simple interest never adds prior interest back into the balance. Compound interest reinvests each period's earnings, so the balance grows faster over long horizons. A $10,000 deposit at 5% compounded monthly for 3 years yields more than the $11,500 simple interest total because each month's interest begins earning additional returns.

Simple interest is common for short consumer loans, treasury bills, and educational examples. Long-term savings and investments typically use compound interest. Model both side by side with the interest rate calculatoror project future balances with the future value calculator.

When to use simple interest

Simple interest suits fixed-principal borrowing where the lender charges a flat percentage of the original loan amount for the full term. It also applies to some savings products that credit interest only on the opening balance. Always confirm whether your lender or institution uses simple or compound accrual before relying on a projection.

Frequently asked questions