Simple Interest Calculator

Currency

Principal (P)

Annual interest rate (%)

Time (years)

Compound comparison uses annual compounding: A = P(1 + R)^T.

Simple interest (I)

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Simple: total (P + I)

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Compound: total (annual)

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Compound interest earned

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What Is Simple Interest?

Simple interest is interest calculated only on the original principal. It does not earn “interest on interest.” The formula is:

I = P × R × T

where P is principal, R is the annual interest rate as a decimal (e.g. 5% = 0.05), and T is time in years. The total amount after T years is P + I. Simple interest is common in some short-term loans, student scenarios, and basic savings math.

Simple Interest vs Compound Interest

With compound interest, each period’s interest is added to the balance, so future interest is calculated on a larger amount. Money grows faster than with simple interest at the same nominal rate and term.

For annual compounding, the future value is A = P(1 + R)^T. With more frequent compounding (monthly, daily), the formula becomes A = P(1 + R/n)^nT where n is compounding periods per year.

Loans often use amortization (interest on the declining balance), which is different from both pure simple and pure compound savings formulas—but the idea that “interest builds on the balance” is closer to compound than to one-time simple interest on the original principal only.

When Simple Interest Applies

Some car loans, short-term notes, or promotional products use simple interest on the original amount. Many consumer deposits and investments advertise APY, which reflects compounding. Always read your contract: the label “simple” or “compound” and the compounding frequency change what you actually pay or earn.

Frequently Asked Questions

Is simple interest better for borrowing?

For the same principal, rate, and term, you usually pay less total interest with simple interest than with compound interest, because interest does not accumulate on prior interest. Your loan agreement determines which method applies.

Why does the calculator show a higher number for compound?

With annual compounding, each year’s interest stays in the account and earns more interest. Simple interest ignores that “snowball” effect.

Can I use months instead of years for simple interest?

Yes. Convert time to years (e.g. 18 months = 1.5 years) or use I = P × R × (months/12) with R as the annual rate in decimal form.