In short
Simple interest is paid only on the original amount, never on interest already earned. It is used for some short loans, bonds that pay out interest, and many classroom problems. This calculator gives the interest and total, and compares them with compound interest.
The simple interest formula
Interest = P × r × t, where P is the principal, r the annual rate as a decimal and t the time in years. The total amount is P + interest.
The interest is the same every year, so the balance grows in a straight line.
Worked example
Lend 10,000 at 5% simple interest for 3 years. The interest is 10,000 × 0.05 × 3 = 1,500, so you get back 11,500.
With interest compounded yearly, the same deposit would grow to 11,576.25. The gap widens over longer periods and at higher rates.
Where simple interest is used
Car loans and personal loans in some countries, interest paid out on a deposit rather than reinvested, and short-term lending between people. Most savings accounts and mortgages use compound interest instead.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated on the principal only. Compound interest is also calculated on interest already added, so it grows faster.
How do I enter months or days?
As a fraction of a year: 6 months is 0.5 and 9 months is 0.75. For days, divide by 365.
How do I find the rate or time instead?
Rearrange the formula: rate = interest ÷ (P × t) and time = interest ÷ (P × r).
Is a loan with simple interest cheaper?
At the same rate and term, yes, when interest builds up unpaid until the end. If you pay the interest as you go, the two cost the same. Watch out for flat-rate loans that charge interest on the original amount even as you repay it: they cost more than their headline rate suggests. Always compare the total cost and any fees.
Methodology
Interest = P × r × t with r the annual rate as a decimal and t in years; total = P + interest. The comparison uses P × (1 + r)^t. Values are rounded for display only.
This calculator gives estimates for information only and is not financial advice.
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