Simple Interest Calculator
Calculate simple interest on loans, investments, and savings accounts
The Simple Interest Calculator helps you calculate interest that is computed only on the principal amount. Unlike compound interest, simple interest doesn't earn interest on previously earned interest, making it easier to calculate and understand.
Quick Examples
Calculation Results
Enter values to calculate simple interest
How Simple Interest Works
Simple Interest Formula
- • I = Interest earned or paid
- • P = Principal (initial amount)
- • R = Annual interest rate (as decimal)
- • T = Time period (in years)
Key Characteristics
Simple vs Compound Interest
| Aspect | Simple Interest | Compound Interest |
|---|---|---|
| Calculation Base | Original principal only | Principal + accumulated interest |
| Growth Pattern | Linear (straight line) | Exponential (curved) |
| Formula | I = P × R × T | A = P(1 + R)^T |
| Common Uses | Short-term loans, bonds | Savings accounts, investments |
| Example (5 years) | $1,000 → $1,250 | $1,000 → $1,276 |
Example: Personal Loan Interest
Calculate interest on a $5,000 personal loan at 8% for 3 years
Given Information
Calculation Steps
Frequently Asked Questions
When is simple interest used instead of compound interest?
Simple interest is commonly used for short-term loans, auto loans, personal loans, and some bonds. It's also used when the interest is paid out regularly rather than being reinvested, such as with certain savings bonds or short-term certificates of deposit.
How do I convert monthly or daily rates to annual rates?
To convert a monthly rate to annual: multiply by 12. To convert a daily rate to annual: multiply by 365. For time periods, convert months to years by dividing by 12, and days to years by dividing by 365.
Is simple interest better than compound interest?
It depends on your perspective. For borrowers, simple interest results in lower total interest payments. For investors, compound interest generates higher returns over time. Simple interest is easier to calculate and understand, making it useful for short-term financial planning.
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