Simple interest is charged or earned only on the original principal — unlike compound interest, it never earns interest on interest. It is common for short-term loans, some bonds and car finance quotes.
Formula
I = P × r / 100 × t
Where I is the interest ($), P is the principal ($), r is the annual interest rate (%), t is the time (years).
Choose any value to calculate — the calculator rearranges the formula for you.
Worked example
$1,000 at 5% simple interest for 5 years earns 1000 × 0.05 × 5 = $250, for a total of $1,250. With yearly compounding the same deposit would grow to about $1,276.
Frequently asked questions
What is the simple interest formula?
I = P × r × t, where P is the principal, r the annual rate as a decimal and t the time in years.
How is simple interest different from compound interest?
Simple interest is calculated on the principal only. Compound interest adds earned interest to the balance, so later interest is calculated on a larger amount.
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