Simple Interest Calculator
Calculate interest that accrues on a fixed principal at a constant rate, without compounding — common for short-term loans, certain bonds, and basic interest problems.
Formula & methodology
Simple interest is calculated as 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. Unlike compound interest, the interest earned each period is always based on the original principal, never on previously earned interest.
Source: Investopedia: Simple Interest
Worked example
Example: a $10,000 principal at a 5% simple annual interest rate for 3 years earns $1,500 in interest, for a total of $11,500, regardless of how the 3 years are split up.
Frequently asked questions
- How is this different from compound interest?
- Simple interest is always calculated on the original principal. Compound interest is calculated on the principal plus any interest already earned, so it grows faster over time.
- Where is simple interest actually used?
- Some auto loans, short-term promissory notes, and certain bonds use simple interest. Most savings accounts, credit cards, and mortgages use compound interest instead.
Practical tips
- Double-check your loan or bond documentation for the word 'simple' or 'add-on' interest before assuming — most consumer credit (credit cards, most mortgages) actually compounds, which changes your real cost significantly.
- For short-term loans (under a year), the difference between simple and compound interest is small; for anything multi-year, always confirm which method applies.
Results are estimates for general informational purposes only and do not constitute financial, tax, or legal advice. Always confirm important figures with a qualified professional or your lender before making a financial decision.