What is simple interest?

Simple interest is charged only on the original principal, not on interest already earned. So the interest is the same each period. The formula is principal times rate times time, where rate is the annual rate as a decimal and time is in years.

How is simple interest different from compound interest?

Simple interest is calculated on the principal alone, while compound interest is calculated on the principal plus any interest already added. Over long periods compound interest grows much faster, which is why savings usually compound and short term loans often use simple interest.

What is the simple interest formula?

Interest equals principal times annual rate times time in years. For example $1,000 at 5% for 3 years is 1,000 times 0.05 times 3, which is $150 of interest, and a total of $1,150.

Simple Interest Calculator

Work out simple interest on a loan or a savings amount. Enter the principal, the annual interest rate, and the time in years, and the calculator shows the interest and the total. Simple interest is charged on the original amount only, so it is the same each year, which makes it easy to work out and common on short term loans.

Principal

Annual rate

Time (years)

simple interest

Total$0

Principal$0

How simple interest works

Simple interest is calculated on the principal alone. The formula is interest equals principal times the annual rate times the time in years. Because it ignores interest already earned, the amount is the same every year, unlike compound interest which builds on itself.

Worked example

A $1,000 deposit at 5% for 3 years earns 1,000 times 0.05 times 3, which is $150 of interest. The total is $1,150. If the same money compounded annually, it would earn slightly more, about $157, because each year's interest would also earn interest.

Related calculators

Compound Interest Calculator: interest that builds on itself.
Loan Interest Calculator: interest on a loan.
Savings Calculator: grow your savings over time.
Term Deposit Calculator: interest on a term deposit.

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