Simple interest calculator

What is a simple interest calculator?

A simple interest calculator is a free online financial tool that works out how much interest you will earn or pay on a fixed sum of money over a set period. It uses the principal (the original amount), an annual interest rate, and the length of time the money is invested or borrowed. Because the interest is always based on the original principal alone, the result is straightforward to compute and easy to plan around.

How does simple interest work?

Simple interest is charged or earned only on the original principal, never on interest that has already accumulated. Each year you add the same fixed amount of interest, which is the principal multiplied by the annual rate. After the agreed number of years, the total interest is simply that yearly amount repeated for the full term. This makes the cost of a loan, or the return on a deposit, predictable from the very start.

Simple interest vs. compound interest

The key difference between simple and compound interest is what the rate is applied to. Simple interest is always calculated on the initial principal, so the interest added in each period stays constant. Compound interest, by contrast, is calculated on the principal plus any interest already accrued, so the balance grows faster over time. For short terms the two methods are close, but over long periods compound interest produces a noticeably larger final amount than simple interest.

Simple interest table

Example of a simple interest table

This table shows simple interest at a rate of 5% on a principal of $1,000. Notice that the interest accrued each year stays fixed at $50, because it is always based on the original principal rather than the growing balance.

Formula

The interest earned under simple interest is:

$I = P\,r\,t$

The final amount is the principal plus that interest:

$A = P + I$

Where:

• $I$ is the total interest earned or paid.
• $A$ is the final amount (principal plus interest).
• $P$ is the principal amount (initial deposit or loan).
• $r$ is the annual interest rate expressed as a decimal.
• $t$ is the time in years.

Examples of use

1. For a principal of $1,000 at an annual interest rate of 5% over 3 years:

   • Principal $P$ = $1,000
   • Interest rate $r$ = 0.05
   • Time in years $t$ = 3

   Calculation: $I = 1000 \times 0.05 \times 3 = 150$ $A = 1000 + 150 = 1150$

2. For a principal of $5,000 at an annual interest rate of 4% over 2 years:

   • Principal $P$ = $5,000
   • Interest rate $r$ = 0.04
   • Time in years $t$ = 2

   Calculation: $I = 5000 \times 0.04 \times 2 = 400$ $A = 5000 + 400 = 5400$

Notes

Simple interest is common for short-term loans, car financing, and some bonds, where the interest is agreed up front and does not snowball. When comparing financial products, check whether interest is simple or compound, since the same headline rate can lead to very different totals over a long term.

FAQs

How is simple interest different from compound interest?

Simple interest is calculated only on the original principal, so the amount added each period is constant. Compound interest is calculated on the principal plus previously accrued interest, so it grows faster and produces a larger total over time.

Does the interest rate need to be entered as a percent or a decimal?

In this calculator you enter the annual rate as a percent (for example 5 for 5%). Internally the rate is divided by 100, which matches the formula $I = P\,r\,t$ where $r$ is a decimal.

Can simple interest be used for loans as well as savings?

Yes. The same formula applies whether you are earning interest on a deposit or paying interest on a loan. For a loan, $I$ is the total interest you will pay and $A$ is the total amount to be repaid.

You can also explore the compound interest calculator to see how reinvested interest changes these results.