Simple Interest Calculator
Calculate simple interest quickly with our free online tool. Enter the principal amount, annual interest rate, and time period to find the total interest earned or owed. Simple interest is commonly used for short-term loans, car loans, and some types of bonds.
Simple interest is calculated using the formula I = P * r * t, where I is the interest amount, P is the principal (the initial sum), r is the annual interest rate expressed as a decimal, and t is the time period in years. Unlike compound interest, simple interest is calculated only on the original principal amount and does not compound.
For example, if you deposit $5,000 at a simple interest rate of 5% per year for 3 years, the interest earned is $5,000 x 0.05 x 3 = $750. Your total amount after 3 years would be $5,750.
Simple interest is most commonly used in short-term lending, some bonds (U.S. Treasury bills use a form of simple interest), auto loans where interest is calculated on the original balance, and promissory notes between individuals. Credit cards and most savings accounts use compound interest instead.
The key difference between simple and compound interest becomes more significant over longer periods. Over 1-2 years, the difference is small. Over 10-30 years, compound interest produces dramatically larger returns because it generates interest on previously earned interest.