Simple Interest Calculator
Calculate simple interest on your principal. Unlike compound interest, simple interest is calculated only on the original amount. For compounding growth, try our compound interest calculator.
Simple interest formula: Interest = Principal × Rate × Time (I = P × r × t), where r is the annual rate as a decimal and t is in years. Example: $10,000 at 5% for 3 years earns $10,000 × 0.05 × 3 = $1,500.
Results
Total Amount
$12,500.00
Principal
$10,000.00
Interest Earned
$2,500.00
💡 Want to compare another scenario? Try different numbers above — small changes can make a big difference.
Visual Breakdown
Understanding Simple Interest and Where It Applies
Simple interest is the most straightforward way to calculate the cost of borrowing or the return on lending. The formula — Principal × Rate × Time — never changes, regardless of how long the loan or deposit lasts. Your interest is always calculated on the original amount, never on accumulated earnings. This makes it predictable and easy to understand.
In practice, simple interest shows up more often than most people realize. Auto loans, many personal loans, and short-term certificates of deposit often use simple interest. If you've ever taken out a car loan and noticed the interest charges stay consistent rather than snowballing, that's simple interest at work.
Simple Interest on Loans vs. Deposits
When you borrow money at simple interest, the total cost is predictable from day one. A $15,000 car loan at 6% simple interest over 4 years costs exactly $3,600 in interest — no surprises. On the deposit side, a $10,000 certificate at 4.5% simple interest earns $450 per year, every year, without variation. This transparency is why some borrowers and savers prefer simple interest products.
How It Differs from Compound Interest in Real Terms
The gap between simple and compound interest widens dramatically over time. On a $10,000 deposit at 5% over 5 years, simple interest earns $2,500. Compound interest (monthly) earns $2,834 — a $334 difference. Extend that to 20 years and the gap explodes: $10,000 in simple interest versus $17,160 with compounding. For short-term financial products, simple interest is fine. For long-term wealth building, it leaves significant money on the table.
When Simple Interest Works in Your Favor
If you're the borrower, simple interest is almost always better for you. You pay less over the life of the loan compared to compound interest, and early repayments reduce the total interest owed proportionally. That's why understanding the type of interest on your loans matters — it directly impacts how much you'll pay.
Quick Answer
Simple interest on $10,000 at 5% for 5 years is $2,500, giving a total of $12,500. Because simple interest never applies to interest already earned, the same deposit compounded monthly would instead reach $12,834 — a difference of $334 over 5 years.
Worked Example
| Year | Interest that year | Cumulative interest | Total amount |
|---|---|---|---|
| 1 | $500 | $500 | $10,500 |
| 2 | $500 | $1,000 | $11,000 |
| 3 | $500 | $1,500 | $11,500 |
| 4 | $500 | $2,000 | $12,000 |
| 5 | $500 | $2,500 | $12,500 |
The Formula
I = P × r × t and A = P + I
I is the interest, P the principal, r the annual rate as a decimal and t the time in years. The rate is applied to the original principal only.
Key Terms Defined
- Simple interest
- Interest charged or paid only on the original principal. The amount earned each year is identical, so the balance grows in a straight line rather than a curve.
- Nominal rate (APR)
- The stated annual rate before compounding is applied. A 7% nominal rate compounded monthly charges or pays 7%/12 = 0.5833% each month.
- Effective annual rate (APY)
- The rate you actually earn or pay once compounding is included: EAR = (1 + r/n)^n − 1. A nominal 7% compounded monthly equals an effective 7.23% per year; compounded daily it equals 7.25%.
Method & Limitations
- • The interest for every year is produced by the same simple-interest function used by the calculator above.
- • The compound comparison uses monthly compounding on the same principal and rate.
- • Balances are rounded to the nearest cent internally and displayed to the nearest dollar.
- • The return rate is assumed constant for the whole period; real markets and savings rates vary year to year.
- • Fees, account charges and currency effects are excluded unless a field for them exists in the calculator.
- • Results are estimates for planning purposes, not financial advice.
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Frequently Asked Questions
How to read this result — and which calculator to use
This calculator: Interest on the original amount only — typical for some loans, bonds and short-term deposits. Interest here never earns interest, so the result grows in a straight line. Compare it with the compound calculator to see how much compounding adds. Formulas and assumptions
- Compound interest calculatorWhat a starting amount plus a fixed monthly deposit grows to at one fixed rate.
- Savings goal calculatorHow long a goal takes, or how much you need to put away each month to reach it by a date.
- Investment growth calculatorHypothetical market returns with inflation, tax and optimistic/pessimistic scenarios.
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