Simple Interest
Principal × rate × time
About This Calculator
Simple interest is calculated only on the original principal amount, not on accumulated interest. It is straightforward and used for short-term loans, savings bonds, and basic financial calculations. Unlike compound interest, the interest earned does not itself earn interest over time.
Formula
I = P × r × t
A = P + I = P × (1 + r × t)
P = principal, r = annual rate (decimal), t = time in years
Example Calculation
$5,000 invested at 4% simple interest for 3 years
- I = 5000 × 0.04 × 3 = $600
- A = 5000 + 600 = $5,600
Interest earned: $600; Total: $5,600
Simple Interest on $1,000
| Rate | 1 Year | 3 Years | 5 Years | 10 Years |
|---|---|---|---|---|
| 3% | $30 | $90 | $150 | $300 |
| 5% | $50 | $150 | $250 | $500 |
| 8% | $80 | $240 | $400 | $800 |
| 10% | $100 | $300 | $500 | $1,000 |
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on principal plus accumulated interest — meaning your interest earns interest. Over time, compound interest produces significantly more growth.
Where is simple interest used in real life?
Simple interest is common in car loans, personal loans, Treasury bonds, and savings accounts that pay interest periodically without reinvesting it. Credit cards use compound interest, which is why balances grow faster.
How do I calculate the time needed to double my money with simple interest?
Set A = 2P: 2P = P(1 + rt), so 1 = rt, meaning t = 1/r. At 5% simple interest, it takes 1/0.05 = 20 years to double. Compare to the Rule of 72 for compound interest (72/5 = 14.4 years).
What is the APR?
Annual Percentage Rate (APR) is the yearly cost of a loan expressed as a percentage, including fees and simple interest. It allows fair comparison between loan offers. It does not account for compounding within the year — that is the APY (Annual Percentage Yield).