Simple Interest Calculator
Calculate interest earned on a principal amount without compounding.
Simple vs Compound Interest
| Type | Interest Earned |
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Request a ToolHow to Use the Simple Interest Calculator
Simple interest is the most straightforward way to calculate the return on your money. Enter three values and get your result instantly:
- Enter the principal. This is the initial amount of money you are depositing, lending, or investing.
- Enter the annual interest rate. This is the yearly rate as a percentage. For example, a 5% rate means you earn 5 cents per dollar per year.
- Enter the time period. How many years the money will earn interest. You can use decimals for partial years (e.g. 2.5 for two and a half years).
The calculator shows total interest earned, the final amount, and monthly interest. Below the result, a comparison table shows how simple interest stacks up against compound interest at the same rate and term.
About Simple Interest
Simple interest is calculated only on the original principal. Unlike compound interest, it does not factor in previously earned interest. The formula is straightforward: Interest = Principal x Rate x Time. A $10,000 deposit at 5% simple interest for 5 years earns exactly $2,500 in interest, regardless of how often it is credited.
Simple interest is commonly used for short-term loans, auto loans, and some types of bonds. Most savings accounts and investments use compound interest instead, which generates higher returns over time because earned interest also earns interest. The comparison table in this calculator shows the difference for your specific inputs.
Frequently Asked Questions
What is simple interest?
Simple interest is interest calculated only on the original principal amount. It does not compound, meaning you do not earn interest on previously earned interest. The formula is I = P x r x t, where P is principal, r is the annual rate (as a decimal), and t is time in years.
When is simple interest used?
Simple interest is used in short-term loans, auto loans, some personal loans, Treasury bills, and certain bonds. It is also used to calculate interest for partial periods in some financial products. Most long-term savings and investment products use compound interest instead.
How is simple interest different from compound interest?
Simple interest is calculated on the principal only. Compound interest is calculated on the principal plus all accumulated interest. Over time, compound interest produces significantly higher returns. For example, $10,000 at 5% for 20 years earns $10,000 in simple interest but roughly $16,533 in compound interest (monthly compounding).
Is simple interest good or bad?
It depends on your perspective. Simple interest is better for borrowers because you pay less total interest than with compound interest. It is worse for savers because your money grows more slowly. When comparing financial products, always check whether the stated rate uses simple or compound interest.