How to use the simple interest calculator
- Enter the principal — the amount borrowed or deposited.
- Enter the annual interest rate as a percentage.
- Enter the time in years (use decimals for partial years, such as 1.5 for 18 months).
- Press "Calculate" to see the interest and the total amount.
What simple interest is
Simple interest is calculated only on the original principal, never on interest that has already accrued. The formula is SI = P × R × T ÷ 100, where P is the principal, R is the annual rate as a percentage and T is the time in years. The total amount you pay or receive is the principal plus the interest.
This model is used for short-term loans, some auto loans, personal loans between individuals and certain bonds. Because the interest never compounds, the growth is a straight line — the same interest amount is earned every year.
Simple interest versus compound interest
| Aspect | Simple interest | Compound interest |
|---|---|---|
| Base for calculation | Original principal only | Principal plus accrued interest |
| Growth pattern | Linear | Accelerating |
| Typical use | Short-term and personal loans | Savings accounts and investments |
| Cost or return | Lower over long periods | Higher over long periods |
When simple interest applies
You will most often see simple interest on loans with a term of a year or less, and in arrangements where the lender charges a flat rate on the original amount. If you are comparing a simple-interest loan with a compound-interest savings account, run both figures — the difference in how interest is applied can be significant over several years.
A worked example
Suppose you deposit $2,000 at an annual rate of 4% for 3 years. The interest is 2,000 × 4 × 3 ÷ 100 = $240, and the total amount at the end is $2,240. Notice that the same $240 is earned each year, because the rate is always applied to the original $2,000. If the interest were compounded instead, each year's interest would be added to the balance before the next year's calculation, producing a slightly higher total over the same period.