Simple interest is calculated only on the original principal amount. It does not compound, so each period earns the same amount of interest.
How to use this calculator
- Enter the principal (starting amount).
- Enter the annual interest rate as a percentage.
- Enter the number of years.
- Review the total interest and final amount.
Formula
Simple interest is I = P × r × t, where P is principal, r is the annual rate as a decimal, and t is time in years. The final amount is principal plus interest.
Example
A $10,000 loan at 5% simple interest for 5 years earns $2,500 in interest, for a total of $12,500.
Frequently asked questions
- When is simple interest used?
- Simple interest is common for short-term loans, some bonds, and basic interest calculations where earnings are not reinvested.
- How is simple interest different from compound interest?
- Simple interest applies only to the original amount. Compound interest applies to the principal plus accumulated interest, leading to faster growth.