Simple Interest Calculator
Enter a principal amount, an annual interest rate, and a time period to calculate simple interest — interest charged only on the original principal, not on interest already accrued.
How the Simple Interest formula works
The simple interest formula:
Interest = Principal × Rate × Time Total = Principal + Interest
Where Rate is the annual interest rate as a decimal, and Time is in years. This differs from compound interest, which also earns interest on previously accumulated interest.
Step-by-step calculation
- Convert the annual interest rate from a percentage to a decimal.
- Multiply principal × rate × time (in years) to get the interest amount.
- Add the interest to the principal to get the total amount owed or earned.
Worked example
A $5,000 loan at 6% simple annual interest for 3 years: Interest = 5,000 × 0.06 × 3 = $900. Total owed = 5,000 + 900 = $5,900.
Frequently asked questions
When is simple interest used instead of compound interest?
Simple interest is common for short-term loans, car loans, and some personal loans. Most savings accounts, credit cards, and mortgages use compound interest instead, which grows faster over time.
Does the time period have to be in whole years?
No — enter a decimal, like 0.5 for six months or 2.25 for two years and three months, since the formula scales linearly with time.
Which grows faster, simple or compound interest?
Compound interest always grows faster (or equal) over time beyond the first period, since it earns interest on interest. Simple interest increases by the same fixed dollar amount every period.