Simple Interest Calculator
Calculate interest using the I = P × r × t formula and compare simple interest returns against compound alternatives.
Results
The Simple Interest Calculator computes the total interest earned using the linear formula I = P × r × t. The output separates the original principal from the interest, showing the total accumulated value and the effective rate of return.
Simple Interest Explained
Simple interest is a linear calculation method that applies a fixed rate only to the original principal. The earned interest does not compound — it remains constant each period regardless of accumulated interest.
The Simple Interest Formula
The simple interest formula is I = P × r × t, where I is the total interest earned, P is the principal deposit, r is the annual interest rate (as a decimal), and t is the time in years. A $15,000 deposit at 4.50% for 3 years earns $15,000 × 0.045 × 3 = $2,025.00 in simple interest. The total value at the end of the term is $17,025.00.
Where Simple Interest Is Applied
Simple interest is applied to 4 common financial instruments: auto loans, personal installment loans, some short-term Treasury bills, and promissory notes. In auto lending, simple interest is calculated daily on the remaining principal balance, which means early payments reduce the total interest cost. For savings and investment products, compound interest is the standard method.
Linear vs. Exponential Growth
Simple interest produces linear growth (a straight line) while compound interest produces exponential growth (a curve). In year 1, the difference is small. A $10,000 deposit at 5% earns $500 under both methods. By year 10, simple interest totals $5,000 while compound interest (monthly) totals $6,470.09 — a $1,470.09 gap. By year 20, the gap widens to $4,532.90.
Simple vs. Compound Comparison
See the dollar difference between simple and compound interest over any time horizon. Adjust the principal, rate, and years to model the growing gap.
Growth Comparison
When Simple Interest Benefits Borrowers
Simple interest benefits borrowers because early principal payments reduce the base for future interest calculations. A $20,000 auto loan at 6.00% simple interest over 48 months generates less total interest if the borrower makes extra principal payments. With compound interest, the same extra payments save less because interest has already compounded into the balance.
Exact Day Count Methods
There are 2 day-count conventions used in simple interest calculations: Actual/365 and 30/360. Actual/365 divides the annual rate by 365 and multiplies by the exact number of days. The 30/360 method assumes each month has 30 days and each year has 360 days. Treasury bills use the Actual/365 convention. Corporate bonds commonly use the 30/360 convention.
Calculate Simple Interest
Enter your principal, rate, and term above to compute simple interest earnings.
Calculate InterestFAQs
What is simple interest?
Simple interest is interest calculated only on the original principal amount. The formula is I = P × r × t, producing linear growth rather than exponential growth.
Where is simple interest used in banking?
Simple interest is used in auto loans, personal loans, some Treasury bills, and promissory notes. Most savings accounts and CDs use compound interest.
How do I convert simple interest to compound interest?
Convert simple interest to compound interest by using A = P(1 + r/n)nt instead of I = P × r × t. The compound formula includes the compounding frequency which generates interest on interest.
Is simple interest better than compound interest for savers?
No, simple interest produces lower returns than compound interest over the same period. Savers benefit from compound interest because it generates interest on previously earned interest.
What is the difference between simple interest and flat rate interest?
Simple interest and flat rate interest use the same calculation method. Both apply the rate to the original principal for the entire term, while reducing-balance methods calculate interest on the remaining balance.