Simple Interest Calculator
Calculate simple interest on a principal amount in any currency. Simple interest is calculated only on the original principal, not on accumulated interest. See also Compound Interest Calculator and Loan Calculator.
How to Calculate Simple Interest
Simple interest is calculated only on the original principal amount. Unlike compound interest, it does not earn interest on previously accumulated interest. Simple interest is commonly used for short-term loans, car loans, and some types of bonds. The calculation is straightforward: multiply the principal by the rate and the time period.
Simple Interest Formula
Simple Interest = P × R × T
Total Amount = P + (P × R × T)
Where:
P = Principal amount
R = Annual interest rate (as decimal)
T = Time in years
Example
Principal: $10,000, Rate: 5%, Time: 3 years
Interest = $10,000 × 0.05 × 3 = $1,500
Total = $10,000 + $1,500 = $11,500
Simple vs Compound Interest
The key difference is that simple interest is always calculated on the original principal, while compound interest is calculated on the principal plus accumulated interest. Over short periods, the difference is small. Over long periods, compound interest grows significantly faster. For example, $10,000 at 5% for 10 years: simple interest yields $15,000, while compound interest (monthly) yields $16,470 — a $1,470 difference.
Simple Interest Reference Table
| Principal | Rate | 1 Year | 3 Years | 5 Years |
|---|---|---|---|---|
| $1,000 | 3% | $30 | $90 | $150 |
| $5,000 | 5% | $250 | $750 | $1,250 |
| $10,000 | 5% | $500 | $1,500 | $2,500 |
| $10,000 | 8% | $800 | $2,400 | $4,000 |
| $50,000 | 4% | $2,000 | $6,000 | $10,000 |
| $100,000 | 6% | $6,000 | $18,000 | $30,000 |
Frequently Asked Questions
When is simple interest used?
Simple interest is commonly used for short-term loans, auto loans, some personal loans, and certain types of bonds. It is also used in some savings certificates and fixed deposits for shorter terms.
Is simple interest better than compound interest?
It depends on your perspective. As a borrower, simple interest is better because you pay less. As an investor, compound interest is better because you earn more. Simple interest is always less than compound interest for the same rate and period.
How do I calculate simple interest for months?
Convert months to years by dividing by 12. For example, 6 months = 0.5 years. Then use the formula: Interest = P × R × (months/12). For $10,000 at 5% for 6 months: $10,000 × 0.05 × 0.5 = $250.