Simple Interest Calculator
Simple interest is calculated only on the principal amount. Use this calculator for short-term loans, bonds, and savings accounts that use simple interest.
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Calculator
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Formula
I = P × r × t
I is the interest earned, P is the principal (starting amount), r is the annual interest rate as a decimal, and t is the time in years. Unlike compound interest, this grows in a straight line — the interest earned each year is always the same amount.
How to use the Simple Interest Calculator
- 1
Enter your principal amount
Value should be in $.
- 2
Enter your annual interest rate
Value should be in %.
- 3
Enter your time period
Value should be in years.
- 4
Read your results instantly
Results update in real time as you type.
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Simple vs. compound interest
Simple interest only earns interest on the original principal. Compound interest earns interest on the principal plus all previously accumulated interest. For short terms, the difference is small. Over long periods, it becomes enormous.
$10,000 at 5% for 1 year: simple = $500 interest. Compound (monthly) = $512. At 20 years: simple = $10,000 in interest. Compound = $17,137.
Where simple interest is actually used
Despite compound interest being more common, simple interest applies to several real-world products: most auto loans use simple interest (your balance falls linearly with each payment), US Treasury bills and short-term bonds often pay simple interest, and some personal loans use it as well.
Knowing which type applies to your product is important for accurate financial planning.
Tips & Insights
Simple interest favors early payoff more
On a simple interest auto loan, paying early directly reduces the balance on which future interest is calculated — there's no compounding penalty for large early payments.
Worked Examples
Short-term bond investment
Simple interest earned: $450. Total amount returned: $5,450. Compare to compound (monthly): $5,470 — a difference of only $20 over 2 years.
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Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus accumulated interest, leading to faster growth over time.
Do savings accounts use simple or compound interest?
Most savings accounts and money market accounts use compound interest, typically compounding daily or monthly. This works in your favor as a saver.
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