Simple Interest Calculator
Free simple interest calculator — work out the interest and final balance on a principal at a given rate over time. Uses the I = P × r × t formula. Runs in your browser, no sign-up.
Simple interest is the easiest interest formula there is. Interest accrues only on the original principal — earned interest doesn’t itself earn more interest. That’s the only thing that differentiates it from compound interest, and over long periods that difference is huge; over short periods it’s negligible.
The formula
I = P × r × t
where P is the principal, r is the annual interest rate as a decimal (4% = 0.04) and t is the time in years. The final balance is A = P + I.
Example: $5,000 at 4% for 2 years.
I = 5,000 × 0.04 × 2 = $400
A = 5,000 + 400 = $5,400
Where you’ll see it
Most everyday banking products (savings, credit cards, mortgages) use compound interest, where the interest accrues on the current balance, including previously-earned interest. Simple interest is more common in:
- short-term loans (some auto financing, payday loans),
- treasury bills priced on a discount basis,
- bonds where the coupon is fixed against face value,
- any contract that explicitly says “computed on the original principal”.
Simple vs. compound, quick comparison
On $1,000 at 5%:
| Years | Simple interest | Compound (annual) |
|---|---|---|
| 1 | $1,050 | $1,050 |
| 5 | $1,250 | $1,276 |
| 10 | $1,500 | $1,629 |
| 30 | $2,500 | $4,322 |
Same starting balance, same rate. Over a year they agree. By year 30 compound is more than 1.7× simple — that gap is what makes long-term investing work.
Worked examples
-
$5,000 at 4% simple interest for 2 years
Interest earned: $400.00 — final balance $5,400.00 after 2 years.
-
$1,500 at 3.5% simple interest for 5 years
Interest earned: $262.50 — final balance $1,762.50 after 5 years.
Frequently asked questions
What's the difference between simple and compound interest?
Simple interest is computed only on the original principal — past interest does *not* earn further interest. Compound interest, by contrast, adds earned interest to the balance, and the new (larger) balance earns interest next period. Over short horizons the two are similar; over long horizons compounding pulls dramatically ahead.
What is the formula?
I = P × r × t, where P is the principal, r is the annual rate as a decimal (4% = 0.04) and t is the time in years. The final balance is A = P + I. So $5,000 at 4% for 2 years earns 5000 × 0.04 × 2 = $400 in interest.
When is simple interest actually used?
Short-term loans (auto loans in some structures, payday-style loans, some bonds, treasury bills priced on a discount basis), and any contract where the agreement explicitly says interest is computed on the original principal only. Most savings accounts, credit cards, and mortgages use compound interest instead.
Can the time be fractional?
Yes. Enter 0.5 for six months, 0.25 for a quarter, 1.5 for eighteen months. The formula scales linearly — that's the whole point of simple interest.
What about negative interest?
Mathematically the formula works for negative rates and you'd get a negative "interest" (i.e. the balance shrinks), but real-world simple-interest products almost always have non-negative rates. Don't read too much into negative outputs.