Simple Interest Calculator - Loans & Investments

What is simple interest?

Simple interest is a way to work out the cost of a loan or the earnings on a deposit. It applies a fixed rate to the original amount of money, called the principal, for a set length of time. Unlike compound interest, it never adds interest on top of interest already earned. This simple interest calculator finds the interest and the total amount for any principal, rate, and time period.

Simple interest formula

The standard formula is:

I = (P × R × T) / 100

• I is the interest earned or owed.
• P is the principal, the starting amount of money.
• R is the interest rate per year, entered as a percentage (for example, enter 5 for 5%).
• T is the time, in years.

The total amount after interest is added is:

A = P + I

Dividing by 100 in the formula converts the rate from a percentage into the fraction it represents. A rate of 5% is 5 divided by 100, or 0.05.

How to calculate simple interest

1. Find the principal, the amount borrowed, invested, or saved.
2. Find the annual interest rate, written as a percentage.
3. Find the time period, in years. Convert months to years by dividing by 12, so 6 months becomes 0.5.
4. Multiply the principal, the rate, and the time together, then divide by 100. This gives the interest.
5. Add the interest to the principal to get the total amount.

Worked example

Suppose someone deposits $2,000 in a savings account that pays 6% simple interest per year, and leaves it there for 3 years.

• I = (2000 × 6 × 3) / 100 = 360
• A = 2000 + 360 = 2360

The account earns $360 in interest. After 3 years, the account holds$2,360 in total.

A second example uses a fraction of a year. A $5,000 loan at an 8$200, and a total repayment of $5,200.

Simple interest vs. compound interest

Simple interest is calculated only on the original principal, so it grows by the same dollar amount every period. Compound interest is calculated on the principal plus any interest already added, so it grows faster over time. Compound interest is used for most savings accounts, mortgages, and credit cards. Simple interest is still used for many short-term loans, some car loans, bonds, and certain certificates of deposit, because it is easier to predict and to check by hand.

When is simple interest used?

• Short-term personal or business loans
• Some auto loans
• Certain bonds and treasury bills
• Basic savings products with a fixed rate
• Late fees calculated on overdue invoices

Frequently asked questions

What is the difference between simple and compound interest? Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus interest already earned, so it grows faster over the same period.

How do I calculate simple interest by hand? Multiply the principal by the rate (as a percentage) and by the time in years, then divide by 100. For $1,000 at 5$100.

How do I enter a time period of months instead of years? Divide the number of months by 12. Six months becomes 0.5 years, and 18 months becomes 1.5 years.

Is simple interest better for a borrower than compound interest? For the same rate and time, simple interest usually costs a borrower less, because interest never builds on interest already charged.

What inputs does this calculator accept? A principal amount of at least 0.01, an interest rate between 0.01% and 100%, and a time period of at least 0.01 years.

Does the calculator work with any currency? Yes. The formula does not depend on currency. Enter the principal in whatever currency is relevant, and the result will be in the same currency.