Simple Interest Calculator

Simple interest is interest calculated only on the original principal, not on any interest already earned. This makes it the most straightforward type of interest: the amount is the same each period, growing your balance in a straight line rather than the accelerating curve of compound interest.

The formula is I = P × r × t — principal times the annual rate times the time in years. A $1,000 deposit at 5% simple interest earns $50 a year, every year, so after three years you've earned $150 and have $1,150 total. Unlike compound interest, the second year's interest is still based on the original $1,000, not the $1,050 balance — which is why simple interest grows more slowly over time.

Simple interest appears in several real-world situations. Many short-term and personal loans, some car loans, and certain bonds use simple interest, as do most informal loans between people. It's also common for calculating interest on overdue invoices or short bridging finance. Because it doesn't compound, simple interest is cheaper for borrowers and less rewarding for savers than a compound equivalent at the same rate.

The contrast with compound interest is the key lesson. Over short periods the difference is small, but over long horizons it becomes dramatic: compound interest earns interest on interest, so the gap between the two widens every year. This is why long-term savings and investments rely on compounding, while simple interest is mostly seen in short-term arrangements.

When comparing financial products, it's worth knowing which type of interest applies. A loan quoted with simple interest may cost less than a compound one at the same nominal rate, and a savings account that compounds will out-earn one paying simple interest. This calculator gives the clean simple-interest figure; for accounts that compound, use a compound interest calculator to see the faster growth.