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Simple Interest Calculator

Simple interest is charged on the original amount and never on the interest already earned. Enter a principal, a rate and a period to see the total. The calculator also shows what compounding would have added, because almost everything you actually borrow or save compounds.

Use decimals for part-years — 18 months is 1.5

Enter a principal, rate and time period to see the interest.

How to use this tool

  1. Enter the principal — the original amount borrowed or invested.
  2. Choose a currency. This affects formatting only; no conversion is applied.
  3. Enter the annual interest rate as a percentage.
  4. Enter the period in years. Use decimals for part-years: 18 months is 1.5.
  5. The interest, the yearly figure and the final total appear underneath.

Formula and method

I = P × r × t
A = P + I
P
— principal, the original amount
r
— annual rate as a decimal (5% = 0.05)
t
— time in years
I
— total interest
A
— final amount

Because the interest is always calculated on P, it is the same every year. That is the whole difference from compound interest, where each year's interest is calculated on a balance that has already grown.

Worked examples

$1,000 at 5% for 3 years

  1. Convert the rate: 5 ÷ 100 = 0.05
  2. Interest: 1000 × 0.05 × 3 = 150
  3. Total: 1000 + 150 = 1150

$150 in interest, giving $1,150 in total.

The same money compounded annually instead

  1. Year 1: 1000 × 1.05 = 1050
  2. Year 2: 1050 × 1.05 = 1102.50
  3. Year 3: 1102.50 × 1.05 = 1157.63

$1,157.63 — about $7.63 more, because interest earned interest.

Notes and limitations

  • Simple interest is less common in practice than textbooks suggest. Most savings accounts, credit cards and mortgages compound, so check which basis a real product uses before relying on this figure.
  • It does appear in genuine products: some car loans, short-term personal loans and bonds that pay a fixed coupon without reinvestment use it.
  • The calculation assumes a constant rate for the whole period. A variable rate needs to be worked out segment by segment.
  • Fees, taxes and any charges for early repayment are not included. They can easily outweigh the interest difference on a short loan.

Frequently asked questions

What is simple interest?

Interest calculated only on the original principal, never on interest already earned. Borrowing $1,000 at 5% simple interest costs $50 every year regardless of how long the loan runs.

What is the difference between simple and compound interest?

Simple interest is always calculated on the original amount. Compound interest is calculated on the balance including interest already added, so it accelerates. Over three years at 5% the gap on $1,000 is small; over thirty years it is enormous.

How do I calculate simple interest for months?

Convert the months to a fraction of a year and use that as the time. Six months is 0.5, and eighteen months is 1.5.

Do banks use simple or compound interest?

Savings accounts almost always compound, usually daily or monthly. Some fixed-term loans quote a flat or simple rate, which is why the advertised figure on those can look lower than a comparable compounding product. Always compare on the effective annual rate.

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