What is simple interest?

Simple interest is interest calculated only on the original principal, never on accumulated interest. The formula is I = P × r × t, where P is principal, r is the annual rate as a decimal, and t is time in years.

When is simple interest used?

Simple interest is common for short-term loans, auto loans (in some jurisdictions), Treasury bills, and informal personal loans. Most savings accounts and investments use compound interest instead.

What is the difference between simple and compound interest?

Simple interest grows linearly because interest is paid out and never earns interest itself. Compound interest grows exponentially because earnings are reinvested and themselves earn interest. Over long periods compound interest produces dramatically larger totals.

How do I calculate simple interest manually?

Multiply principal by annual rate (as a decimal) by time in years. Example: $5,000 at 6% for 3 years gives I = 5000 × 0.06 × 3 = $900. Total amount = principal + interest = $5,900.

Can I use this for monthly or daily interest?

Yes. Convert your time horizon to years (months ÷ 12, days ÷ 365) and the annual rate stays the same. The calculator above accepts time in years directly.

Simple Interest Calculator

Understanding Simple Interest

Simple interest is the most basic form of interest. It's computed only on the original principal — never on accumulated interest — which makes it predictable, easy to calculate, and very different in long-term outcome from compound interest. Whenever you see a flat percentage attached to a loan or fixed-income product, there's a good chance simple interest is at work.

The Simple Interest Formula

The formula is short and memorable:

I = P × r × t

I — interest earned (or owed)
P — principal (the starting amount)
r — annual interest rate, as a decimal (so 6% becomes 0.06)
t — time in years

The total amount you'll have at the end of the term is simply A = P + I = P(1 + rt).

A Worked Example

Suppose you lend a friend $5,000 for 3 years at a flat annual rate of 6%. Plugging into the formula:

I = 5000 × 0.06 × 3 = $900

Your friend pays you back $5,000 (the principal) plus $900 in interest, for a total of $5,900. The interest is the same in year 1, year 2, and year 3 — that's the defining feature of simple interest.

Where Simple Interest Shows Up

Despite the name, simple interest isn't always the more common choice. You'll typically encounter it in:

Short-term personal loans — peer lending and informal arrangements often use simple interest because it's easy to compute and verify.
Auto loans (in some jurisdictions) — many car loans technically use simple interest with a daily accrual, though the practical effect resembles a simplified amortization schedule.
Treasury bills and short-dated bonds — most discount instruments quote yields using simple interest because the holding period is under a year.
Some certificates of deposit — CDs that pay out interest periodically (rather than reinvesting) are effectively simple interest from the depositor's perspective.

Simple vs. Compound: Why It Matters

Over a single year there's no difference between simple and compound interest. The gap appears as time stretches out. At 8% per year on $10,000:

After 5 years: simple = $14,000, compound = $14,693 (gap = $693)
After 15 years: simple = $22,000, compound = $31,722 (gap = $9,722)
After 30 years: simple = $34,000, compound = $100,627 (gap = $66,627)

This is why long-term savers always prefer compound interest, and why borrowers should be cautious about long-dated compound-interest debt. For a side-by-side, see our simple vs. compound interest deep-dive.

Tips for Using This Calculator

Enter the rate as a percentage (e.g. 6 for 6%), not a decimal — the calculator does the conversion.
For sub-year periods, use a fractional year. 6 months is 0.5, 90 days is roughly 0.247.
The "Effective Annual" output shows what equivalent compound rate would have produced the same total — useful for comparing simple-interest products against compound-interest alternatives.