Simple Interest Calculator

What Is Simple Interest?

Simple interest is the most straightforward method of calculating interest on a loan or investment. The formula is I = P × R × T, where I is the interest earned, P is the principal (the original amount), R is the annual interest rate expressed as a decimal, and T is the time period in years. The total amount you receive or owe is simply the principal plus the interest: A = P + I.

Unlike compound interest, simple interest does not factor in previously accumulated interest. The interest amount remains the same each year because it is always calculated on the original principal. For example, if you invest $10,000 at 5% simple interest for 3 years, you earn $500 per year, totalling $1,500 in interest regardless of how long the money has been invested.

Simple interest is commonly used in auto loans, short-term personal loans, some bonds, and certificates of deposit. It is also a useful baseline for comparing different financial products. Because it is linear rather than exponential, simple interest is easier to understand and predict. However, for long-term savings or investments, compound interest typically yields significantly higher returns. Use this calculator to quickly determine how much interest you will earn or owe on any principal amount at a given rate and time period, and compare it against compound interest to make informed financial decisions.