Simple Interest Calculator
Calculate simple interest earned on a principal over a given time period.
What Is Simple Interest?
Simple interest is calculated only on the original principal amount. Unlike compound interest, the interest does not earn additional interest over time. It is commonly used for short-term loans, car loans, and some bonds.
The Formula
Interest = Principal × Rate × Time
I = P × r × t
Where: I = interest earned, P = principal, r = annual rate (as decimal), t = time in years.
Example
| Principal | Rate | Time | Interest | Total |
|---|---|---|---|---|
| $5,000 | 5% | 3 years | $750 | $5,750 |
| $10,000 | 8% | 2 years | $1,600 | $11,600 |
Simple interest grows linearly. A $5,000 deposit at 5% earns exactly $250 every year, regardless of how long the money has been invested.
Frequently Asked Questions
When is simple interest used instead of compound interest?
Simple interest is common for auto loans, short-term personal loans, some certificates of deposit, and Treasury bills. Most savings accounts and mortgages use compound interest.
How do I convert an annual rate to a monthly rate?
Divide the annual rate by 12. For example, a 6% annual rate is 0.5% per month. For simple interest with months, use time = months/12.
Is simple interest always less than compound interest?
For periods longer than one compounding cycle, yes. Simple interest grows linearly while compound interest grows exponentially, so compound always yields more over time.