Simple Interest Calculator
Simple interest uses the classic formula I = P × r × t: interest is charged or earned on the original principal only, not on interest that has already accrued. It is useful for checking short-term consumer loans, fixed savings notes, invoice late fees and finance-class examples. Enter the principal, annual rate and term to see the interest amount and ending balance.
How simple interest is computed
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1
Enter the principal
Use the starting loan, deposit or note amount in the currency you want to compare.
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2
Enter the annual rate
Type the yearly rate as a percentage, such as 5 for 5%. The calculator converts it to a decimal.
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3
Enter the time period
Use years for the term. For partial periods, use decimals: 0.5 for six months, 0.25 for three months.
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4
Read the breakdown
Interest is I = P × r × t. The final balance is P + I.
Simple vs compound, side by side
$10,000 at a 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 is $262.82 higher after 5 years. At the same rate for 30 years, the gap grows to about $18,219 on the same principal because compound interest earns interest on previous interest.
Formula quick reference
I = P × r × t Final balance = P + I
Where:
- I = interest earned or charged.
- P = principal, the original loan, deposit or note amount.
- r = annual rate as a decimal, so 5% becomes 0.05.
- t = time in years, so 6 months becomes 0.5.
Where simple interest actually appears
- Consumer loans or instalment contracts when the agreement explicitly says interest is simple.
- Fixed savings notes or certificates where interest is paid separately instead of being rolled into the principal.
- Late-payment charges in invoices, such as
1.5% per month simple. - Bills and bonds when accrued interest is calculated from the principal over a stated number of days.
- Classroom finance problems, where simple interest is usually the first interest formula taught.
Gotchas
- Partial years. Six months is 0.5 years, not 6. Convert days to years as days ÷ 365, unless the contract specifies a 360-day banker’s year.
- Rate units. A monthly rate is not the same as an annual rate. Annualize it first, or use the period stated in the contract.
- Simple rate vs effective yield. Simple interest does not include compounding, so it should not be compared directly with APY, AER or another effective annual yield.
Frequently Asked Questions
Use the method your contract or assignment specifies. If you are comparing options, simple interest is easier to audit and usually cheaper for a borrower at the same stated rate, while compound interest grows savings or debt faster over time.
Express the time in years. Three months is 0.25, eighteen months is 1.5. If the agreement uses a 360-day financial year, divide the number of days by 360 instead of 365.
At the same stated rate and term, simple interest costs less than compound interest. Real loan costs can still include fees, penalties or changing rates, so compare the full repayment terms, not just the formula.
Split the timeline into separate periods, calculate I = P × r × t for each rate, and add the interest amounts together. This is common in variable-rate products and some late-payment calculations.
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