Simple Interest Calculator

Simple interest is I = P × r × t: the principal, times the rate per period, times the number of periods. The total repaid or received is P + I. So $1,000 at 5% a year for three years earns 1,000 × 0.05 × 3 = $150, and the total is $1,150. Each year contributes exactly $50 — the same $50, because the calculation always returns to the original $1,000 and never to the growing balance. The one place this goes wrong is unit mismatch. The rate and the time have to describe the same period. A 5% annual rate with a time of 3 means three years; the same 5% intended as a monthly rate with a time of 3 means three months and a completely different answer. This calculator expects both in years, so a monthly rate must be annualized (multiplied by 12) or the time expressed as a fraction of a year — six months is 0.5.

The defining property of simple interest is that the base never moves. Interest is computed on the original principal in every period, regardless of how much interest has already accrued. That makes the growth linear. Plot it and you get a straight line with a constant slope of P × r per period. Double the time and you exactly double the interest; triple it and you triple the interest. Nothing accelerates. That property has a practical use beyond the arithmetic: it makes the cost of borrowing trivially easy to verify. With simple interest, there is no schedule to reconcile and no compounding frequency to argue about — the interest for any span of time is a multiplication. It is also why simple interest is the natural way to compute accrued interest between two dates, since a partial period is just a fraction of t.

Compound interest calculates on the principal plus everything already earned, so the base grows and each period's interest is larger than the last. Simple interest holds the base fixed. Over one period the two are identical. Over a few periods the difference is small enough to ignore in a rough estimate. Over long horizons it stops being small, because one grows linearly and the other exponentially, and an exponential curve eventually leaves any line behind regardless of the rate. On the same $1,000 at 5%, simple interest adds $50 in year one and $50 in year twenty. Compounding adds $50 in year one and a substantially larger amount in year twenty, because by then it is charging 5% on a balance well above $1,000. Which one applies is a fact about the contract, not a choice. Most consumer loans, credit cards, savings accounts and investments use compounding in some form. If you are estimating any of those with this page, the figure will understate the real amount, and the error grows with the time horizon.

Despite compounding's dominance, the simple formula shows up in several real places. Accrued interest between dates is calculated this way on many instruments — the interest that has built up since the last payment date is the daily or periodic rate applied to the principal for the days elapsed. Some short-term loans and promissory notes state interest as a flat charge on the amount borrowed. Bond coupon payments are fixed amounts computed on face value, and the coupon itself does not compound unless you reinvest it, which is a separate decision producing separate returns. Certain consumer loans are also described as "simple interest loans", and the phrase is easy to misread. It usually means interest accrues daily on the outstanding balance rather than being precomputed for the whole term — which is a favourable structure for a borrower who pays early, since a payment made sooner reduces the balance interest is charged on. It does not mean the total cost matches P × r × t on the original principal across an amortizing schedule. When the point is to compare borrowing costs, the number to look at is the disclosed APR and the total of payments, not a rate description in the marketing copy. Terms vary by lender, and the written disclosure is what binds.

The formula covers interest and nothing else. It assumes a single principal that is neither added to nor repaid during the term. If the balance changes — a partial repayment, an additional deposit — the calculation has to be split into segments, each with its own principal and its own span of time. It also excludes fees entirely. Origination charges, service fees, late fees and penalties are real costs of a loan and appear nowhere in P × r × t, which is one reason a loan's disclosed APR can exceed its stated interest rate. On the earning side, interest received is generally taxable income depending on your circumstances and the type of account, and inflation reduces what the ending amount buys. The figure on this page is pre-tax and in nominal dollars. For a specific loan or account, the governing numbers are the ones on the contract or the account disclosure.