Simple Interest Calculator
Enter the amount, the rate and the number of years. This gives the simple interest, the total at the end, and what compounding would have given instead.
Interest
$1,200.00
- Interest
- $1,200.00
- Amount at the end
- $6,200.00
- Interest each year
- $400.00
- If it compounded instead
- $6,298.56
- Compounding would add
- $98.56
- The interest is the same every year — $400.00 — because it is always worked out on the original $5,000.00 and never on the interest already earned.
- Compounded at the same rate over the same time it would come to $6,298.56 instead of $6,200.00. That gap is the whole difference between the two, and it widens the longer you leave it.
- Simple interest grows in a straight line and compound interest grows as a curve. Over one year they are identical; over thirty they are not remotely comparable.
About simple interest
Simple interest is worked out on the original sum every single year. Put in 5,000 at 8% and it earns 400 in the first year, 400 in the second, and 400 in every year after that. The interest already earned never earns anything itself.
That is the whole difference from compound interest, where each year's interest joins the balance and starts earning too. Over one year the two are identical. Over three the gap is small. Over thirty it is enormous, because compounding grows as a curve and simple interest grows in a straight line.
Simple interest is the one taught first because the arithmetic is a single multiplication, and because it makes the compound case easier to see afterwards. It is also genuinely used — some short-term loans, car finance and bonds pay simple interest — but most savings accounts and mortgages compound.
The rate and the time have to agree with each other. A rate quoted per year needs the time in years; if the time is given in months, divide by twelve before using it, or the answer comes out twelve times too large.
What it works out
- Simple interest from principal, rate and time
- The total amount at the end
- What each year earns
- What compounding would have given instead
The formula
I = P × R × T ÷ 100 A = P + I
Multiply the principal by the rate by the time, and divide by a hundred because the rate is a percentage.
$5,000 at 8% for three years: 5,000 × 8 × 3 ÷ 100 = $1,200. The total at the end is the principal plus the interest, so $6,200.
Each year earns exactly the same $400, because the sum being charged against never changes. That is what "simple" means here.
Compounded at the same rate over the same time it would come to $6,298.56 instead — $98.56 more. Three years is short enough for the gap to look small. Over thirty years at 8%, $5,000 becomes $17,000 simple and $50,313 compound, which is the same rate producing almost three times the money.
Watch the units. The rate is per year, so the time must be in years. Six months is 0.5, not 6.
- P
- Principal — the amount you start with.
- R
- Rate per year, as a percentage.
- T
- Time in years. Half a year is 0.5.
- I
- The interest earned. Add it to P for the total amount, A.
A worked example
$5,000 at 8% simple interest for three years.
That works out to $1,200.00 .
- Interest
- $1,200.00
- Amount at the end
- $6,200.00
- Interest each year
- $400.00
- If it compounded instead
- $6,298.56
- Compounding would add
- $98.56
Questions
What is the formula for simple interest?
I = P × R × T ÷ 100, where P is the principal, R the rate per year as a percentage and T the time in years. $5,000 at 8% for three years gives $1,200.
What is the difference between simple and compound interest?
Simple interest is always worked out on the original sum. Compound interest is worked out on the balance, so interest earns interest. Over three years at 8%, $5,000 grows to $6,200 simple and $6,298.56 compound.
How do I find the total amount?
Add the interest to the principal. A = P + I. On these figures $5,000 plus $1,200 of interest is $6,200.
What if the time is in months?
Divide by twelve first, because the rate is per year. Six months is 0.5 years and eighteen months is 1.5. Putting months straight in gives an answer twelve times too large.
How do I find the rate if I know the interest?
Rearrange: R = I × 100 ÷ (P × T). The same rearrangement gives P or T if you know the other three — there are only four quantities and any three fix the fourth.
Where is simple interest actually used?
Some short-term loans, car finance and bonds. Most savings accounts, credit cards and mortgages compound instead, which is why the compound figure is shown here for comparison.
Does simple interest ever beat compound?
Never over more than one period, at the same rate. They are equal after one year and compound is ahead from then on, by more each year.
Why is simple interest taught first?
Because it is one multiplication, and because seeing it makes the compound case obvious afterwards — compound is just simple interest applied again to a balance that keeps growing.