What's the difference between simple and compound interest?

Simple interest is charged only on the original principal, so it grows in a straight line: the same dollar amount every year. Compound interest is charged on the principal plus all previously accumulated interest, so it grows exponentially. Over short periods the two are close; over long periods compound interest pulls far ahead. Simple interest is common for short-term and auto loans; compound interest dominates savings, investments, and credit cards.

What is the simple interest formula?

I = P × r × t, where I is the interest, P is the principal, r is the annual rate as a decimal (5% = 0.05), and t is the time in years. The total amount is A = P + I = P × (1 + r × t).

How do I handle periods shorter than a year?

Express the time as a fraction of a year. Six months is 0.5, three months is 0.25, and 90 days is roughly 90 ÷ 365 ≈ 0.247. Enter that fraction in the Years field.

Is the rate entered as a percent or a decimal?

Enter it as a percent — type 5 for 5%, not 0.05. The calculator divides by 100 internally to apply the formula.

Where is simple interest actually used?

It is common in short-term personal and auto loans, some certificates of deposit, Treasury bills, and many promissory notes. Lenders often prefer it for short terms because it is transparent and easy to verify.

Does this calculator account for taxes or fees?

No. The result is the gross interest before any taxes, origination fees, or other charges. Your actual cost or take-home return may differ — confirm the terms with your lender or a financial professional.

Simple Interest Calculator

Principal, annual rate, time — and the interest earned plus the total amount, with no compounding.

Buğra SözeriFinance

Updated June 27, 2026 · Published June 27, 2026

Reviewed by Convertitive Finance Desk

Financial disclaimer: This calculator is for educational purposes only and is not financial advice. Verify all figures with a qualified financial professional or your lender before acting on them.

Simple interest is the most straightforward way money grows or a debt accrues: interest is charged only on the original principal, never on interest already earned. The formula is I = P × r × t — principal times the annual rate (as a decimal) times the time in years. It is the basis for many short-term loans, car financing, and some bonds, and it is the natural counterpart to compound interest, where interest itself earns interest. The rate you enter is the same annual percentage your bank or lender quotes (its APR). Enter three numbers below to see the interest earned and the total amount.

Principal ($)

Annual rate (%)

Years

Interest earned

$150.00

Total amount

$1,150.00

I = 1,000.00 × (5.00 ÷ 100) × 3.00 = $150.00 · Total = $1,150.00

Simple interest accrues only on the original principal — earned interest never itself earns interest. For educational use only; not financial advice.

How to use

Enter the principal
The original amount you're investing or borrowing — the figure interest is calculated on.
Enter the annual rate
The yearly interest rate as a percent (e.g., 5 for 5%). Use the APR your lender or bank quotes.
Enter the time in years
The duration in years. Use a fraction for shorter periods — 0.5 for six months, 0.25 for a quarter.

Worked examples

Principal	Rate	Years	Interest	Total
$1,000	5%	3	$150.00	$1,150.00
$5,000	4%	2	$400.00	$5,400.00
$2,000	6%	0.5	$60.00	$2,060.00
$10,000	3.5%	5	$1,750.00	$11,750.00

Frequently asked questions

What's the difference between simple and compound interest?: Simple interest is charged only on the original principal, so it grows in a straight line: the same dollar amount every year. Compound interest is charged on the principal plus all previously accumulated interest, so it grows exponentially. Over short periods the two are close; over long periods compound interest pulls far ahead. Simple interest is common for short-term and auto loans; compound interest dominates savings, investments, and credit cards.
What is the simple interest formula?: I = P × r × t, where I is the interest, P is the principal, r is the annual rate as a decimal (5% = 0.05), and t is the time in years. The total amount is A = P + I = P × (1 + r × t).
How do I handle periods shorter than a year?: Express the time as a fraction of a year. Six months is 0.5, three months is 0.25, and 90 days is roughly 90 ÷ 365 ≈ 0.247. Enter that fraction in the Years field.
Is the rate entered as a percent or a decimal?: Enter it as a percent — type 5 for 5%, not 0.05. The calculator divides by 100 internally to apply the formula.
Where is simple interest actually used?: It is common in short-term personal and auto loans, some certificates of deposit, Treasury bills, and many promissory notes. Lenders often prefer it for short terms because it is transparent and easy to verify.
Does this calculator account for taxes or fees?: No. The result is the gross interest before any taxes, origination fees, or other charges. Your actual cost or take-home return may differ — confirm the terms with your lender or a financial professional.

About

When simple interest is the right model

Use simple interest for short-term obligations where interest does not roll into the balance: many auto loans, bridge loans, and short-term notes are quoted this way. If interest is added to the balance each period and then itself earns interest, you need the compound-interest model instead.

What this isn't

It is not a loan amortization schedule. Real installment loans blend principal and interest into level payments and can use day-count conventions that shift the figures slightly. Treat this as the textbook baseline, not a payoff statement.

Sources & references

Authoritative references behind the math, constants, and tables on this page. Verified by Buğra Sözeri on the dates shown and re-checked at every deploy.

Investor.gov — U.S. SEC Office of Investor Education — Authoritative U.S. government reference for the simple- and compound-interest formulas and investor education(as of 2026-06-27)
Investopedia — financial concepts reference — General reference for definitions of simple interest, principal, and APR used throughout this page(as of 2026-06-27)
Consumer Financial Protection Bureau — U.S. consumer-finance authority referenced for how simple interest applies to short-term and auto loans(as of 2026-06-27)