Introduction
Simple interest is a quick way to figure out how much extra money you will earn or owe over time. It is calculated using three things: the principal (the starting amount of money), the interest rate (a percentage), and the time period (how long the money is borrowed or invested). The formula is straightforward: Interest = Principal × Rate × Time. Unlike compound interest, simple interest does not grow on top of itself. It only applies to the original amount. This makes it easy to understand and predict.
Use this Simple Interest Calculator to quickly find out how much interest you will earn on a savings account or how much interest you will pay on a loan. Just enter your principal amount, the annual interest rate, and the time period. The calculator works out the numbers for you, so you can plan your finances with confidence.
How to Use Our Simple Interest Calculator
Enter your principal amount, interest rate, and time period below. The calculator will show you how much interest you earn and your total amount.
Principal Amount ($): Type in the starting amount of money you are investing or borrowing. This is the original sum before any interest is added.
Interest Rate (%): Enter the yearly interest rate as a percentage. For example, if your rate is 5 percent, type in 5.
Time Period (Years): Enter the number of years you plan to invest or borrow the money. You can use decimals for partial years, such as 1.5 for one and a half years.
Simple Interest Calculator
Simple interest is a quick and straightforward way to calculate the cost of borrowing money or the earnings on an investment. Unlike compound interest, which grows on top of itself over time, simple interest is only calculated on the original amount of money, called the principal. This makes it easier to understand and predict exactly how much interest you will pay or earn.
The Simple Interest Formula
The basic formula for simple interest is:
I = P × R × T
- I = Interest earned or paid
- P = Principal (the starting amount of money)
- R = Annual interest rate (written as a decimal, so 5% becomes 0.05)
- T = Time the money is borrowed or invested, measured in years
To find the total amount you end up with (called the end balance or maturity value), you simply add the interest to the principal: A = P + I.
How This Calculator Works
This calculator lets you solve for any one of the four key variables. If you know three of them, it will figure out the fourth:
- End Balance: How much money you'll have at the end of the term.
- Principal: How much you need to start with to reach a certain goal. This is closely related to finding the present value of a future sum.
- Interest Rate: What rate is needed to grow your money to a target amount.
- Term: How long it will take to reach your desired balance.
You can also add regular deposits or withdrawals to see how extra contributions change the final result. For example, adding $100 per month on top of your initial investment will increase your end balance over time.
Where Simple Interest Is Used
Simple interest appears in many real-world situations. Here are the most common ones:
- Auto loans: Many car loans use simple interest to calculate what you owe.
- Short-term personal loans: Loans that last a few months to a few years often use simple interest.
- Treasury bills: They are sold at a discount and pay their face value at maturity, so the return is a single, simple difference.1
- Certificates of deposit (CDs): Certain CDs calculate returns with simple interest.
- Student loans: Federal student loans in the United States accrue simple interest during specific periods.
Simple Interest vs. Compound Interest
The biggest difference between simple and compound interest is what the interest is calculated on. With simple interest, you always earn (or pay) interest only on the original principal. With compound interest, you earn interest on the principal plus any interest that has already been added. Over long periods of time, compound interest grows much faster because of this "interest on interest" effect.
For example, if you invest $10,000 at 5% for 10 years:
- Simple interest earns $5,000 in total interest (End balance: $15,000)
- Compound interest (compounded annually) earns $6,288.95 in total interest (End balance: $16,288.95)
Simple interest is better for borrowers because you pay less over time. Compound interest is better for savers and investors because your money grows faster.
Tips for Using This Calculator
- Use the date range option if you know the exact start and end dates of your loan or investment. The calculator will automatically convert the number of days into years.
- Switch to advanced time entry to enter a combination of years, months, weeks, and days for more precise results.
- Enter a negative number in the deposits field to model regular withdrawals from an account.
- Select your currency from the dropdown to display results in the format you prefer.