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Simple Interest Calculator
Calculate simple interest on any principal using the I = P × R × T formula. Results update instantly as you type.
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Simple Interest
Total Amount
Principal
Annual Rate
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How to Use This Calculator
Enter the principal amount (the initial sum of money), the annual interest rate as a percentage, and the time period in years. The calculator instantly shows the total simple interest earned or owed, the total amount (principal plus interest), and echoes back your inputs for easy reference. Use this to compare how different rates or time periods affect the total interest on a loan or savings deposit.
Simple Interest Formula
Simple interest is calculated with the formula I = P × R × T, where I is the interest, P is the principal, R is the annual interest rate as a decimal (e.g. 4% = 0.04), and T is the time in years. The total amount is A = P + I. For example: $5,000 at 4% for 3 years gives I = 5,000 × 0.04 × 3 = $600, and A = $5,000 + $600 = $5,600. Unlike compound interest, there is no interest on previously earned interest — the calculation is linear and predictable.
Example Calculation
Suppose you deposit $10,000 in a savings account that pays 5% simple interest annually. After 4 years, you earn I = $10,000 × 0.05 × 4 = $2,000 in interest, giving a total of $12,000. Compare that with compound interest: at 5% compounded annually, you'd have $10,000 × (1.05)^4 ≈ $12,155 — about $155 more due to compounding. For short periods, the difference is small; over decades it grows significantly.
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Frequently Asked Questions
What is simple interest?
Simple interest is calculated only on the original principal amount — it does not compound. The formula is I = P × R × T, where P is the principal, R is the annual interest rate as a decimal, and T is the time in years. Because interest doesn't accumulate on previously earned interest, simple interest is straightforward and easy to predict.
When is simple interest used vs compound interest?
Simple interest is commonly used for short-term loans, auto loans, and some personal loans. Compound interest is used for savings accounts, mortgages, and most long-term investments. For borrowers, simple interest is generally cheaper over long periods. For savers, compound interest is much more powerful because interest earns interest.
How do I calculate simple interest by hand?
Multiply the principal by the annual interest rate (as a decimal) by the time period in years. For example: $5,000 at 4% for 3 years = $5,000 × 0.04 × 3 = $600 in interest. The total amount owed or earned is simply the principal plus the interest: $5,000 + $600 = $5,600.
What types of loans use simple interest?
Many auto loans, some personal loans, and most short-term installment loans use simple interest. U.S. savings bonds also use simple interest. Student loans and payday loans often use simple interest as well, though payday loans carry extremely high annualized rates. In contrast, credit cards, mortgages, and savings accounts typically use compound interest.
Is simple interest always better for borrowers?
For loans, simple interest is usually better for borrowers compared to compound interest, especially over longer periods. However, what matters most is the actual rate and loan terms. A 5% compound interest loan could still be cheaper than a 10% simple interest loan. Always compare the total cost, not just the interest method.
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