How to use the simple interest calculator
Enter the principal, the annual interest rate and the length of time, then choose whether the time is in years, months or days. The calculator shows the interest earned or owed, the total amount, and how it compares with yearly compound interest at the same rate.
Simple interest formula
Simple interest is I = P × r × t, where P is the principal, r is the annual rate as a decimal and t is the time in years. For example, $5,000 at 5% for 3 years earns $5,000 × 0.05 × 3 = $750.
Simple versus compound interest
With simple interest, interest is calculated only on the original principal. With compound interest, interest is added to the balance and then earns interest itself. Over short periods the difference is small, but over many years compounding grows much faster. Use the compound interest calculator for long-term savings.
Where simple interest is used
- Short-term personal and business loans
- Some car loans, where interest accrues daily on the balance
- Certificates of deposit and bonds that pay interest out instead of reinvesting it
Frequently asked questions
How do I calculate interest for days?
Divide the number of days by 365 to get the time in years, then multiply by the principal and rate. Some lenders use 360 days instead.
Is simple interest better for borrowers?
Yes. For the same rate and time, simple interest costs less than compound interest because interest is never charged on interest.