The simple interest formula
Simple interest is interest charged only on the original principal, never on interest already accrued. The formula is I = P · r · t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. The total amount owed or earned is P + I. Because the interest base never grows, simple interest is predictable and easy to plan around, which is why it is common on short-term personal loans and some bonds.
How to use this calculator
Enter the principal, the annual interest rate as a percentage, and the number of years. The result shows the interest charged plus the total amount. If your loan or savings actually compounds, the figure will be higher — switch to the compound interest calculator to see the difference. Installment debts are amortized rather than simple, so price those with the loan calculator.
Worked example: simple vs compound
Borrow $1,000 at 5% for 3 years. Simple interest is I = 1000 × 0.05 × 3 = $150.00, for a total of $1,150.00. If the same loan compounded annually, the total would be about $1,157.63 — a small gap over 3 years that widens dramatically over decades.
| Method | Interest | Total |
|---|---|---|
| Simple | $150.00 | $1,150.00 |
| Compound (annual) | $157.63 | $1,157.63 |
These figures are an estimate for general information only and are not financial advice; consult a qualified professional before making money decisions. Savings accounts quote compounded returns, which the APY calculator converts.
Frequently asked questions
- What is simple interest?
- Simple interest is interest charged only on the original principal. It is calculated as principal times rate times time, and the interest never earns additional interest.
- How much interest is $1,000 at 5% for 3 years?
- Simple interest is $1,000 × 0.05 × 3 = $150.00, making the total amount $1,150.00.
- How is simple interest different from compound interest?
- Simple interest applies only to the principal, while compound interest applies to the principal plus accumulated interest, so compound grows faster over time.
- Where is simple interest used?
- It is common on short-term personal loans, car loans, and some bonds, where interest is charged on a fixed principal rather than a growing balance.
- What if the term is in months or days?
- Convert it to years first: 9 months is 0.75 years, and 90 days is roughly 0.247 years on a 365-day basis. Note that some lenders calculate on a 360-day year, which changes the interest slightly.