Options — time unit
Interest
—
P × r × t
Total amount
—
principal + interest
How to Calculate Simple Interest
Principal, rate, time — multiply and add.
1
Enter the principal
Type the original amount borrowed or invested — the sum interest is charged on.
2
Set rate and time
Enter the annual rate and the time, choosing years or months to match the term.
3
Read interest and total
See the simple interest and the total amount — principal plus interest — instantly.
Simple vs Compound Interest
The straight line versus the upward curve.
Simple interest charges the same amount every period, because it is always a percentage of the original principal alone. Plot it over time and you get a straight line — $1,000 at 5% earns exactly $50 a year, every year. Compound interest, by contrast, adds each period's interest to the balance so it too earns interest, and the total curves upward, pulling further ahead the longer the money is left.
Over a single year the two are nearly identical, which is why simple interest is a fine approximation for short terms. Over decades the gap is enormous, which is why savers want compounding and borrowers of long-term debt should watch it closely. Simple interest still governs many car loans, bonds and short promissory notes, so it is worth knowing exactly what it produces — which is what this calculator shows.
Frequently Asked Questions
What is the simple interest formula?
Simple interest is I = P × r × t, where P is the principal, r is the annual interest rate as a decimal, and t is the time in years. Multiply the three together to get the interest, then add it to the principal for the total amount. For example, $1,000 at 5% for 3 years earns 1000 × 0.05 × 3 = $150 of interest, for a $1,150 total. The defining feature is that interest is charged only on the original principal — it never earns interest on itself — which makes simple interest lower than compound interest over the same rate and term. This calculator lets you enter the time in years or months and does the conversion for you.
What is the difference between simple and compound interest?
Simple interest is charged only on the original principal, while compound interest is charged on the principal plus all previously accumulated interest. With simple interest the amount earned each period is constant, so the total grows in a straight line; with compound interest each period's interest is added to the balance and itself earns interest, so the total curves upward and pulls ahead the longer the term runs. Over one year at the same rate the two are nearly identical, but over decades compound interest produces dramatically more. Simple interest is used for some short-term loans, car loans and bonds; most savings, mortgages and credit cards use compounding. Our
Compound Interest Calculator handles the compounding case.
How do I calculate simple interest for months?
Convert the months to a fraction of a year and use the same formula. Because the rate is annual, time must be in years, so a period of months is that number divided by twelve: six months is 0.5 years, eighteen months is 1.5. For example, $2,000 at 6% for 9 months is 2000 × 0.06 × (9 ÷ 12) = $90 of interest. This calculator does the conversion automatically — just switch the time unit to months and enter the number of months, and it divides by twelve internally before applying I = P × r × t. Keeping the rate annual and the time in years is the key to getting simple interest right.
What is simple interest used for?
Simple interest shows up wherever interest is meant to be charged only on the original sum, not on accumulated interest. Many car loans and other short-term consumer loans are simple-interest loans, some personal loans and promissory notes use it, and the coupon on a bond is effectively simple interest on the face value. It is also the model taught first in school because it is the clearest illustration of principal, rate and time. What it is not typically used for is long-term saving or borrowing — savings accounts, mortgages and credit cards compound, which is why those need a compound interest calculation instead. Use this tool when the agreement specifically says simple interest, or for a quick estimate.