Interest calculator — simple interest

What is simple interest?

Simple interest is calculated only on the original principal — it never "stacks." $10,000 at 5% simple interest earns exactly $500 every year, forever. The interest never earns interest of its own. This makes simple interest easy to calculate but slower than compound interest for growing money.

The simple interest formula

I = P × r × t

• I = interest earned (or paid)
• P = principal (starting amount)
• r = annual interest rate (as decimal, so 5% = 0.05)
• t = time in years

Worked example: $10,000 at 6% for 4 years = $10,000 × 0.06 × 4 = $2,400 interest. Total after 4 years: $12,400. Each year adds exactly $600 — no more, no less.

Simple vs compound interest

The difference becomes dramatic over time. $10,000 at 8% for 30 years:

• Simple interest: $10,000 + ($10,000 × 0.08 × 30) = $34,000
• Compound interest (annual): $10,000 × (1.08)^30 = $100,627

Same rate, same time, same starting amount — compound produces 3× more money. This is why banks charge compound interest on credit cards but pay simple interest (or very low compound rates) on basic savings.

When to use this interest calculator

Use simple interest for:

• Car loans — most auto loans use simple interest (front-loaded on the payment schedule)
• Personal loans — most unsecured personal loans
• Treasury bonds — pay simple interest coupon payments
• Some CDs — check if your CD pays simple or compound interest
• Short-term promissory notes — between individuals or small businesses
• Student loans — subsidized federal loans accrue simple interest while in school

For savings, investments, mortgages, and credit cards, use our compound interest calculator instead — those all compound.

How to calculate simple interest by hand

Three steps: (1) convert the rate to decimal (divide % by 100), (2) multiply principal × rate × years, (3) add to principal for total. Example: $5,000 loan at 7% for 3 years → 5000 × 0.07 × 3 = $1,050 interest → $6,050 total owed.

Simple interest FAQ