Simple Interest Calculator
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- Formula shown
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Results
Simple interest on $5,000.00 at 4% a year for 3 years is $600.00, for a total of $5,600.00
| Year | Simple interest balance | Compound balance | Difference |
|---|---|---|---|
| 1 | $5,200.00 | $5,200.00 | $0.00 |
| 2 | $5,400.00 | $5,408.00 | $8.00 |
| 3 | $5,600.00 | $5,624.32 | $24.32 |
Simple interest is charged or paid on the original principal only. It is never added to the balance, so it does not earn interest itself.
How to use the simple interest calculator
- Choose the value you want to find: interest, principal, rate or time.
- Enter the other values. The rate is always a yearly rate.
- Pick whether time is in years, months or days. For days, choose a 365-day year (exact interest) or a 360-day year (ordinary or banker's interest).
- Read the answer, the total amount, the interest per year and the formula with your numbers filled in.
Simple interest formula
A = P × (1 + r × t)
P = I ÷ (r × t) r = I ÷ (P × t) t = I ÷ (P × r)
I is the interest, P the principal (the amount lent, borrowed or deposited), r the annual rate as a decimal and t the time in years. A is the total owed or received at the end. Months become years by dividing by 12, and days by dividing by 365 or 360.
"Simple" means interest is worked out on the original principal only. It is paid out or owed, but never added to the balance, so there is no interest on interest. Each year earns exactly the same amount: P × r.
Worked examples
- Interest: $5,000 at 4% for 3 years earns $5,000 × 0.04 × 3 = $600.00, so the total is $5,600.00.
- Rate: if $6,000 earns $900 over 2.5 years, the rate is 900 ÷ (6,000 × 2.5) = 6% a year.
- Time: $8,000 at 5% takes 1,000 ÷ (8,000 × 0.05) = 2.5 years to earn $1,000.
- Days: a 90-day note of $10,000 at 5% costs $123.29 with a 365-day year, but $125.00 with a 360-day year. The 360-day convention charges slightly more for the same quoted rate.
Simple interest compared with compound interest
$10,000 at 5% a year. The compound column adds interest to the balance once a year.
| Years | Simple interest total | Compounded yearly | Extra from compounding |
|---|---|---|---|
| 1 | $10,500 | $10,500 | $0.00 |
| 2 | $11,000 | $11,025 | $25.00 |
| 5 | $12,500 | $12,763 | $263 |
| 10 | $15,000 | $16,289 | $1,289 |
| 20 | $20,000 | $26,533 | $6,533 |
| 30 | $25,000 | $43,219 | $18,219 |
For a year or less the two are identical, which is why short-term loans and deposits often use simple interest. Over decades the gap becomes large: simple interest grows in a straight line, compound interest grows exponentially. See the compound interest calculator for the curve.
Where simple interest is used
- Short-term loans and notes, such as a 90-day business note or a loan between family members, often quote simple interest.
- Bond coupons. A bond pays its coupon rate on the face value each year; the coupons are paid out, not added to the bond.
- Accounts that pay interest out to you instead of adding it to the balance.
- "Simple interest" car loans and mortgages charge interest on the balance still owed, which falls as you pay. That is an amortizing loan rather than I = P × r × t on the original amount, so use the interest rate calculator or an amortization schedule for those.
Common mistakes
- Using a monthly rate with time in years, or the other way round. The rate here is always per year.
- Entering 5 instead of 0.05 when working by hand. In the formula, r must be a decimal; this calculator takes the percentage for you.
- Ignoring the day-count basis on short loans. Check whether the agreement uses 365 or 360 days.
Frequently asked questions
How do you calculate simple interest?
Multiply the principal by the annual rate (as a decimal) and by the time in years: I = P × r × t. For example, $5,000 at 4% for 3 years earns $5,000 × 0.04 × 3 = $600, so you end with $5,600.
How do I find the interest rate from simple interest?
Rearrange the formula to r = I ÷ (P × t). If $6,000 earns $900 over 2.5 years, the rate is 900 ÷ (6,000 × 2.5) = 0.06, or 6% a year.
What is the difference between a 365-day and a 360-day year?
Exact interest divides the days by 365; ordinary or banker’s interest divides by 360, which charges a little more. A 90-day loan of $10,000 at 5% costs $123.29 with 365 days and $125.00 with 360 days.
Is simple interest better than compound interest?
For a borrower, simple interest costs less; for a saver, compound interest earns more. Over one year they match. $10,000 at 5% for 10 years gives $15,000 with simple interest and $16,288.95 compounded yearly.
How long does it take to earn a certain amount of simple interest?
Use t = I ÷ (P × r). $8,000 at 5% earns $400 a year, so it takes 1,000 ÷ 400 = 2.5 years to earn $1,000 of interest.