Simple Interest Calculator
Calculate interest earned or owed using the simple interest formula I = P × r × t.
Comment ça marche
Simple interest is the most straightforward way to calculate interest: I = P × r × t, where P is the principal (starting amount), r is the annual interest rate (as a decimal), and t is time in years. Unlike compound interest, it's calculated only on the original principal — never on interest that's already accumulated.
For example, $5,000 at a 4% annual simple interest rate over 3 years earns I = 5000 × 0.04 × 3 = $600 in interest, regardless of how that interest would otherwise be reinvested. The total amount owed or earned is A = P + I = $5,600.
Because it never compounds, simple interest grows in a straight line over time — the same dollar amount of interest accrues every year — rather than the accelerating curve produced by compound interest, where each period's interest is calculated on a growing balance.
Simple interest shows up in specific real-world products: some short-term loans, certain auto loans, and many bonds calculate interest this way. Most savings accounts, credit cards, and long-term investment vehicles use compound interest instead, since it's more favorable to whoever is earning the interest (and less favorable to whoever is paying it).
On the same $5,000 principal at 4% for 3 years, compound interest (compounded annually) would earn about $624 instead of $600 — a modest difference over 3 years that grows much larger over longer periods, since compounding effects accelerate over time while simple interest stays linear.
How is this different from compound interest?
Simple interest is calculated only on the original principal, not on accumulated interest.
What's the formula for total amount owed, not just the interest?
A = P + I, or equivalently A = P(1 + rt) — principal plus the simple interest earned over the full time period.
What kinds of loans or accounts use simple interest?
Some short-term loans, certain auto loans, and many bonds use simple interest; most savings accounts, credit cards, and long-term investments compound instead.
Why would a lender prefer simple interest?
Borrowers generally benefit more from simple interest since it doesn't accelerate over time — it's often used in contexts meant to be more borrower-friendly or straightforward, like some short-term consumer loans.
Does time need to be in years for this formula?
Yes — if you have a time period in months, divide by 12 first (e.g., 6 months = 0.5 years) to keep the units consistent with the annual interest rate.
How much more would I earn with compound interest instead?
It depends on the rate and time period, but the gap grows the longer the money is invested — over a few years it's often modest, but over decades compound interest can produce dramatically more than simple interest at the same rate.
Can simple interest apply to a loan I owe, not just savings?
Yes — the same formula calculates interest owed on a loan just as it calculates interest earned on savings; the math is identical, only the direction of the money differs.
What if the interest rate is given as a percentage rather than a decimal?
Divide by 100 first — a 5% rate is 0.05 in the formula. This calculator handles that conversion automatically when you enter the rate as a percentage.
Does simple interest ever apply to fractional years?
Yes — t can be any positive number, including fractions like 2.5 years, and the formula works the same way.
How do I solve for the interest rate if I know the interest earned?
Rearrange the formula to r = I ÷ (P × t) — divide the interest earned by principal times time to back out the implied annual rate.
How do I solve for the principal if I know the interest and rate?
Rearrange to P = I ÷ (r × t) — divide the interest amount by the rate times time to find the original principal that would produce it.