Calculate simple interest on your principal. Unlike compound interest, simple interest is calculated only on the original amount deposited or borrowed.
Understanding Simple Interest
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. Your interest is always calculated on the original amount, never on accumulated earnings.
In practice, simple interest shows up in auto loans, many personal loans, and short-term certificates of deposit.
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
Simple interest on $10,000 at 5% per year
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.