Calculate Simple Interest
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Simple vs Compound Interest
See how compound interest compares to simple interest for the same inputs.
💵 Simple Interest
📈 Compound Interest
Year-by-Year Breakdown
| Period | Interest Earned | Total Interest | Total Amount |
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What Is Simple Interest?
Simple interest is the most straightforward method of calculating the cost of borrowing or the return on an investment. It is calculated only on the original principal — not on any accumulated interest. This makes it predictable and easy to understand, though it grows more slowly than compound interest over long periods.
The Simple Interest Formula
The formula for simple interest is: I = P × R × T
Where I is the interest amount, P is the principal (starting amount), R is the annual interest rate as a decimal, and T is the time in years. To find the total amount at the end of the period: A = P + I or equivalently A = P(1 + RT).
For example: $5,000 at 6% per year for 3 years gives interest of I = 5000 × 0.06 × 3 = $900. Total amount = $5,900.
Simple Interest vs Compound Interest
The key difference is that simple interest is calculated only on the principal, while compound interest is calculated on the principal plus all previously earned interest. For short time periods, the difference is small. Over many years, compound interest produces significantly higher returns. This calculator shows both so you can compare directly.
Where Simple Interest Is Used
Simple interest is used in many real-world financial products including short-term personal loans, auto loans, Treasury bills, certificates of deposit (CDs), and some savings accounts. It's also commonly used in everyday informal lending scenarios, such as calculating how much interest is owed on a personal loan between friends or family members.