Money
Simple Interest Calculator
Enter the principal, the annual interest rate and the time to see what simple interest costs or earns.
The link carries your figures, so it reopens on exactly these numbers.
The formula
interest = principal × rate × time
total = principal + interest
compound difference = principal × (1 + rate)^time − principal − interest
Worked example
$10,000 at 5% for 3 years
- interest = 10,000 × 0.05 × 3 = $1,500
- total = 10,000 + 1,500 = $11,500
- monthly = 1,500 ÷ 36 = $41.67
- compound interest = 10,000 × 1.05³ − 10,000 = $1,576.25
- compound earns $76.25 more over 3 years
Where this goes wrong
Confusing simple interest with compound interest
Simple interest is calculated on the original principal only, never on the interest itself. At 5% a year on $10,000, simple interest is $500 every year. Compound interest adds last year's interest to the principal, so the second year earns 5% of $10,500, not $10,000. Over short periods the difference is small; over long ones it dominates.
Questions
- When is simple interest used in practice?
- Car loans, short-term personal loans, and some bonds use simple interest. Savings accounts, mortgages and credit cards almost always use compound interest. If your statement says "APY" or "effective rate" rather than just "rate", the interest is compound.
- How do I convert a time in months?
- Divide the months by 12. Eighteen months is 1.5 years, so enter 1.5. For days, divide by 365 — or by 360 if the contract uses the banker's convention.
- Is the rate always annual?
- In this calculator, yes. A monthly rate of 1.5% is an annual rate of 18% for simple-interest purposes, because simple interest does not compound. Enter 18 in the rate field and the time in years.