What is simple interest?
Simple interest is interest charged or earned only on the original amount, the principal. Unlike compound interest, the interest is never added back to the balance, so it does not earn interest of its own. The amount of interest is therefore the same in every period, which makes it easy to calculate and easy to compare.
You will find simple interest on many short-term loans, car finance in some countries, certificates of deposit that pay out interest instead of reinvesting it, bonds that pay fixed coupons, and informal loans between friends or businesses.
How to use the simple interest calculator
- Enter the principal, the amount borrowed or invested.
- Enter the annual interest rate as a percentage.
- Enter the time period and choose years, months or days.
- See the interest, the total amount (principal plus interest) and the working of the formula.
The simple interest formula
I = P × R × T ÷ 100 and A = P + I
- P is the principal.
- R is the annual interest rate in percent.
- T is the time in years. Months are divided by 12 and days by 365.
- A is the total amount at the end of the period.
Some lenders use a 360-day year for day counts (the “banker's rule”). If yours does, the interest for a period in days will be slightly higher than shown here.
Examples
Years: 5,000 at 8% for 3 years earns 5,000 × 8 × 3 ÷ 100 = 1,200, so the total is 6,200.
Months: 10,000 at 6% for 18 months is 1.5 years, giving 10,000 × 6 × 1.5 ÷ 100 = 900.
Days: 10,000 at 7.3% for 100 days is 100 ÷ 365 years, giving exactly 200 in interest.
To compare: the same 5,000 at 8% compounded yearly for 3 years would earn about 1,298.56, around 98 more than simple interest, because each year's interest would start earning interest too.
More worked examples
Short-term loan: £2,000 at 5% a year for 9 months is 0.75 years, so the interest is 2,000 × 5 × 0.75 ÷ 100 = £75.
Common mistakes to avoid
- Mixing up time units. The rate is per year, so convert months and days to years. The calculator does this for you.
- Assuming a flat-rate loan is cheap. Flat interest on the full amount costs more than a reducing-balance loan at the same rate; compare with the EMI calculator.
- Using simple interest for savings that compound. Most savings accounts compound; use the compound interest calculator for those.
Sources and methodology
The calculations on this page follow these published standards and references. The code is covered by automated tests against known values.