Simple Interest Calculator
Premium Edition – Calculate interest quickly with our advanced tool
How Simple Interest Works
Simple interest is calculated only on the principal amount, or on that portion of the principal amount that remains unpaid.
Formula: I = P × r × t
Where:
- I = Interest
- P = Principal amount
- r = Annual interest rate (in decimal)
- t = Time period (in years)
Total Amount: A = P + I
Or equivalently: A = P × (1 + r × t)
Simple vs. Compound Interest
Unlike compound interest, simple interest doesn’t add earned interest back to the principal. This means the interest amount remains constant each period.
Frequently Asked Questions
Simple interest is a quick method of calculating the interest charge on a loan or investment. It is determined by multiplying the principal amount by the interest rate and the time period.
Simple interest is calculated only on the principal amount, whereas compound interest is calculated on the principal amount and also on the accumulated interest of previous periods. This means compound interest grows at a faster rate than simple interest.
The formula for simple interest is I = P × r × t, where I is the interest, P is the principal amount, r is the annual interest rate (in decimal form), and t is the time in years.
Yes, you can calculate simple interest for months or days by adjusting the time period. For months, divide the annual rate by 12 and use the number of months. For days, divide the annual rate by 365 (or 360 for some financial calculations) and use the number of days.
Simple interest is commonly used in car loans, short-term personal loans, and some mortgages. It’s also used in savings accounts that pay simple interest rather than compound interest.
Simple Interest Calculator
If you’ve ever wondered how much your money can grow with a fixed interest rate—or how much you’ll owe on a loan—our Simple Interest Calculator can give you a quick and accurate answer. Unlike compound interest, which adds complexity by reinvesting earned interest, simple interest is straightforward. It’s based only on the principal, interest rate, and time period.
What is a Simple Interest Calculator?
A Simple Interest Calculator is a tool that helps you figure out how much interest you’ll earn or pay over time. It uses the formula:
I = P × r × t
Where:
- I = Interest amount
- P = Principal (the starting amount)
- r = Annual interest rate in decimal form (e.g., 6% = 0.06)
- t = Time in years
Unlike compound interest calculators, this one doesn’t factor in “interest on interest.” Instead, it gives you a straight-line estimate of your costs or earnings.
How to Use a Simple Interest Calculator
To use a simple interest calculator, you’ll typically enter three values:
- Principal Amount (P): How much money you invest or borrow.
- Interest Rate (r): Annual percentage rate (APR).
- Time (t): The length of time in years.
The calculator then multiplies these values to return the interest owed or earned (I). If you want the total balance, just add interest to principal:
Total = Principal + Interest
Once you’ve calculated simple interest, try these other calculators to compare different rate structures:
- Add back principal automatically with the Simple Interest Plus Principal Calculator.
- See how interest grows with compounding using the Compound Interest Calculator.
- Evaluate lending costs using the APR Calculator or explore Nominal Interest Rate Calculator for nominal values.
- Review multiple compounding options in the Interest Rate Table.
Manual Calculation of Simple Interest
If you don’t have a calculator handy, you can compute it yourself. Here’s how:
Example 1: CD Investment
- Principal: $50,000
- Annual Rate: 4.5% = 0.045
- Time: 2 years
Formula:
I = 50,000 × 0.045 × 2 = $4,500
Result: Your interest earnings = $4,500
Example 2: Short-Term Savings (9 Months)
- Principal: $10,000
- Annual Rate: 6% = 0.06
- Time: 9/12 = 0.75 years
Formula:
I = 10,000 × 0.06 × 0.75 = $450
Result: You earn $450 in interest.
Example 3: Daily Basis (511 Days)
- Principal: $5,000
- Rate: 3% = 0.03
- Time: 511/365 ≈ 1.4 years
Formula:
I = 5,000 × 0.03 × 1.4 = $210
Result: You earn $210 in interest.
Simple Interest Calculator for Different Time Units
Most calculators adjust for time automatically, but here’s how it works:
- Months → Years: divide months by 12
- Quarters → Years: divide quarters by 4
- Days → Years: divide days by 365 (or 360, depending on convention)
| Time Period | Conversion Example | Equivalent in Years |
|---|---|---|
| 9 months | 9 ÷ 12 | 0.75 years |
| 2 quarters | 2 ÷ 4 | 0.5 years |
| 511 days | 511 ÷ 365 | 1.4 years |
This ensures the interest rate (which is annual) matches the time period correctly.
Simple Interest vs. Compound Interest
One common confusion is the difference between simple interest and compound interest.
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Calculation | Based only on the principal | Based on principal + accumulated interest |
| Growth Type | Linear (straight-line growth) | Exponential (accelerates over time) |
| Example Use Cases | Auto loans, student loans, bonds | Credit cards, savings accounts, investments |
| Formula | I = P × r × t | A = P (1 + r/n) ^ (nt) |
Takeaway: Compound interest grows faster because it reinvests previous interest, while simple interest remains predictable and steady.
When to Use a Simple Interest Calculator
A simple interest calculator is useful for:
- Savings accounts that pay fixed interest
- Certificates of Deposit (CDs) with flat returns
- Bonds and Treasury bills
- Auto loans or student loans (though repayment schedules use amortization)
- Quick estimates of loan or investment returns
For loans, note that actual repayment includes amortization, where each payment reduces the balance and therefore the future interest owed.
Advantages of Simple Interest
- Easy to calculate and understand
- Predictable results (no surprise compounding)
- Fairer for short-term loans or investments
- Useful for comparing different loan or savings options
Limitations of Simple Interest
- Doesn’t capture the power of compounding for investments
- Not realistic for most modern savings accounts
- May underestimate actual costs on loans with variable terms
Simple Interest Formulas for Different Variables
Here are quick formulas you can use (depending on what you need to solve for):
- Find Interest: I = P × r × t
- Find Principal: P = I ÷ (r × t)
- Find Rate (decimal): r = I ÷ (P × t)
- Find Rate (percent): R = r × 100
- Find Time: t = I ÷ (P × r)
These make a simple interest calculator flexible whether you know the interest earned, the loan amount, or the repayment period.
Practical Example: Auto Loan with Simple Interest
Let’s say you borrow $20,000 at an annual rate of 7% for 3 years.
- Formula:
I = 20,000 × 0.07 × 3
I = 4,200 - Total cost of the loan:
20,000 + 4,200 = 24,200
Result: You’ll pay $4,200 in interest over the life of the loan.
Final Thoughts on Simple Interest Calculator
A Simple Interest Calculator is a powerful yet easy-to-use tool that helps you:
- Estimate returns on savings and CDs
- Understand loan costs before borrowing
- Compare different investment or borrowing options
By using the formula I = P × r × t, you can quickly calculate interest manually, or rely on a calculator to save time.
If you’re dealing with savings accounts or credit cards, however, remember that most use compound interest, which grows differently. Still, for clarity and planning, the simple interest calculator remains one of the most practical financial tools available.