Simple Interest Calculator

Simple interest is the most straightforward way to calculate the cost of borrowing or the return on a deposit: interest is charged only on the original amount you put in (the principal), never on interest that has already accrued. That makes it easy to predict, and it's the method used for many short-term loans, car loans, and some bonds and promissory notes.

The Formula

Interest = Principal × Rate × Time
Total Amount = Principal + Interest

Here, Rate is the annual interest rate written as a decimal (4% becomes 0.04), and Time is the length of the loan or deposit in years. A 6-month loan is entered as 0.5 years, an 18-month loan as 1.5 years, and so on.

A Worked Example

Suppose you deposit $5,000 into an account paying 4% simple interest per year, and you leave it there for 3 years:

Interest = 5,000 × 0.04 × 3 = $600
Total = 5,000 + 600 = $5,600

Notice that the $600 in interest is earned evenly — exactly $200 per year, every year — because none of the earned interest is added back into the principal to earn more interest. That's the defining trait of simple interest and the main thing that separates it from compounding.

Simple Interest vs. Compound Interest

With compound interest, each period's interest gets added to the principal, so future interest is calculated on a growing balance — the classic "interest on interest" effect. Over short periods or small rates the difference is minor, but over many years compounding pulls noticeably ahead. If you're comparing the two, our Compound Interest Calculator shows how the same principal and rate grow when interest is reinvested instead of paid out flat each period.

Frequently Asked Questions

Q: Does the interest rate need to be annual?
A: This calculator assumes the rate you enter is an annual rate and that Time is in years. If you have a monthly rate, multiply it by 12 first, or convert your time period into a fraction of a year (e.g., 3 months = 0.25 years).

Q: Why is my real loan's interest higher than this calculator's result?
A: Most everyday loans — mortgages, credit cards, most personal loans — actually use compound interest or amortized interest, not simple interest, even though they're often described casually as having a fixed "rate." Simple interest is common for short promissory notes, certain car loans, and bonds, but check your loan's terms if the numbers don't match.

Q: Can Time be a fraction, like 45 days?
A: Yes. Convert days to years by dividing by 365 (45 days ≈ 0.123 years) and enter that decimal value in the Time field.