Simple Interest Calculator

Simple interest at a glance#

A simple interest calculator works out the interest and the total from a principal, an annual rate and a number of years. The simple interest formula is I = P x r x t: principal times the annual rate times the time in years. The total is the principal plus the interest, so P + I.

Worked example: $1,000 at a 5% annual rate for 3 years. Write the rate as a decimal, 0.05, then multiply: 1000 x 0.05 x 3 = $150 in interest. The total is 1000 + 150 = $1,150. Interest is charged only on the original $1,000, so it stays $50 a year and does not grow.

Each figure is $1,000 x 0.05 x the number of years. This is what sets simple interest apart from compound interest: compound interest adds each period's interest back to the balance, so later interest is charged on a bigger amount and the total climbs faster. Simple interest keeps the yearly charge flat.

Enter your principal, annual rate and term in the calculator above for the exact interest and total. Use the same time unit for the rate and the term, and note that real loans may round or apply fees that shift the final number.

How simple interest works#

Simple interest is charged on the original principal only. Because the rate never compounds, the yearly charge stays the same for the whole term. That makes it predictable for a borrower: you pay interest on what you first borrowed, not on interest that has already built up. For a lender or saver it usually earns less than compound interest, which adds each period's interest back to the balance.

Solving for principal, rate, or time#

The formula I = P x r x t can be rearranged to find any one of the four values when you know the other three:

• Principal: P = I / (r x t)
• Rate: r = I / (P x t)
• Time in years: t = I / (P x r)

Write the rate as a decimal (5% becomes 0.05) and keep the rate and the term in the same unit. If the term is in months and the rate is annual, convert the term to years first, so 18 months is 1.5 years.

More worked examples#

A $5,000 car loan at a 3% annual rate over 5 years: 5000 x 0.03 x 5 = $750 in interest, for $5,750 repaid in total. A $20,000 loan at 5% over 4 years: 20000 x 0.05 x 4 = $4,000 in interest, for $24,000 repaid. In both cases the interest is a flat yearly amount, $150 a year on the car loan and $1,000 a year on the larger loan.

Where simple interest is used#

Simple interest shows up on some short-term personal and auto loans, certain certificates of deposit, and coupon bonds. Longer-term savings, retirement accounts, and most credit card balances use compound interest instead, because compounding grows the balance faster. Check your loan or account terms, since the same rate produces a different total under each method.

FAQ#

How do you calculate simple interest?#

Multiply the principal by the annual rate (as a decimal) by the time in years: I = P x r x t. For $2,000 at 4% over 3 years, that is 2000 x 0.04 x 3 = $240.

What is the difference between simple and compound interest?#

Simple interest is charged only on the original principal, so the yearly amount stays flat. Compound interest is charged on the principal plus any interest already added, so the total grows faster over time.

How do I find the principal from the interest?#

Rearrange the formula to P = I / (r x t). If $240 of interest came from a 4% rate over 3 years, the principal was 240 / (0.04 x 3) = $2,000.

Can I calculate simple interest by month?#

Yes. Either use a monthly rate with the term in months, or convert the term to years and use the annual rate. Keep the rate and the term in the same unit so they match.

Is simple interest used for savings accounts?#

It can be, but most savings and investment accounts compound. Simple interest fits products with a fixed rate where interest is figured on the original balance only, such as some short-term loans and CDs.