Simple Interest Calculator
Simple interest is the textbook formula I = P x r x t — interest accrues on the original principal only, never on previously earned interest. It shows up in short-term personal loans, some bonds, late-payment penalty clauses, and classroom problems. This calculator plugs in principal, annual rate and term length to output the interest and the ending balance.
How simple interest is computed
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1
Enter the principal
The initial amount — the loan balance or the deposit — in any currency.
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2
Enter the annual rate
Quoted as a percentage per year (e.g., 5 for 5%). The calculator converts to decimal.
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3
Enter the time period
In years; use decimals for fractional periods (0.5 for six months).
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4
Read the breakdown
I = P x r x t for interest, and P + I for the total.
Simple vs compound, side by side
$10,000 at 5% annual rate for 5 years:
| Year | Simple interest balance | Compound interest balance (annual) |
|---|---|---|
| 0 | $10,000.00 | $10,000.00 |
| 1 | $10,500.00 | $10,500.00 |
| 2 | $11,000.00 | $11,025.00 |
| 3 | $11,500.00 | $11,576.25 |
| 4 | $12,000.00 | $12,155.06 |
| 5 | $12,500.00 | $12,762.82 |
The compound version beats simple by $262.82 over 5 years. Over 30 years at the same rate, the gap widens to roughly $18,000 on the same principal — that is the power of interest on interest.
Where simple interest actually appears
- Car loans with precomputed interest (disappearing but not dead).
- Short-term personal loans from credit unions.
- Late-payment penalties in many B2B invoice contracts (
1.5% per month simple). - Treasury bills maturing in under a year.
- Bonds quoting accrued interest between coupon dates.
- Classroom problems — this is the formula every finance course teaches first.
Gotchas
- Partial years. 6 months = 0.5, not 6. Convert days to years as days/365 (or days/360 for banker’s year, which some contracts specify).
- Rate units. A rate quoted “per month” is 12x the annual equivalent. Do not plug a monthly rate into a formula expecting an annual one.
- Rate vs APR vs APY. Simple interest rates are usually stated as APR. APY includes compounding and will be higher than the APR for any non-simple loan.
Frequently Asked Questions
Use whichever your contract specifies. If you are free to choose — as the lender, simple interest is cheaper for the borrower; as the investor, compound grows your money faster. Always check the actual terms.
Express the time in years. Three months is 0.25, eighteen months is 1.5. If your contract specifies a banker’s year of 360 days, use days divided by 360 instead of 365.
Yes — at the same rate, simple interest always costs the borrower less than compound. Many payday-loan APRs quote as simple but compound in effect through rollover fees.
Compute each sub-period separately with its own rate and sum the interest. Adjustable-rate mortgages, for instance, use simple-interest accrual per day at whatever the current index rate is.