Find interest earned and total amount instantly with the classic I = P × r × t formula — for loans, deposits, and quick estimates. Free, no sign-up.
Simple interest is the most basic way to calculate the cost of borrowing money or the return on a deposit. Unlike compound interest, simple interest is calculated only on the original principal — never on interest that has already accumulated. That means it grows in a straight line, not exponentially, and it is far easier to calculate by hand.
Simple interest shows up in short-term personal loans, many auto loans, some bonds and promissory notes, "add-on interest" consumer credit, and plenty of introductory finance and math classes. If you have ever seen a loan advertised with a flat annual rate that doesn't change no matter how long you carry the balance, there's a good chance it is using simple interest.
I = P × r × t and A = P + I
Example 1 — A savings deposit. You deposit $5,000 in an account paying 4% simple annual interest for 3 years.
Example 2 — A short-term loan in months. You borrow $1,200 at 9% annual interest for 6 months (0.5 years).
Example 3 — Solving for the rate. A $2,000 principal earned $200 in interest over 2 years. What rate was used?
Common principal, rate and time combinations calculated with I = P × r × t:
| Principal | Rate | Time | Interest | Total Amount |
|---|---|---|---|---|
| $1,000 | 3% | 1 year | $30.00 | $1,030.00 |
| $1,000 | 5% | 2 years | $100.00 | $1,100.00 |
| $2,500 | 4% | 3 years | $300.00 | $2,800.00 |
| $5,000 | 6% | 1 year | $300.00 | $5,300.00 |
| $5,000 | 4% | 5 years | $1,000.00 | $6,000.00 |
| $10,000 | 5% | 10 years | $5,000.00 | $15,000.00 |
| $10,000 | 7% | 2 years | $1,400.00 | $11,400.00 |
| $500 | 9% | 6 months | $22.50 | $522.50 |
Every row uses the same formula: Interest = Principal × Rate × Time (in years). Enter your own numbers in the calculator above for an instant result.
The key difference is what the interest is calculated on. Simple interest only ever looks at the original principal, so the interest earned each year is identical. Compound interest recalculates on principal plus all previously earned interest, so each year's interest is a little larger than the last.
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Calculated on | Principal only | Principal + accumulated interest |
| Growth curve | Linear | Exponential |
| $1,000 at 5% for 10 years | $1,500 | $1,629 (monthly) |
| $1,000 at 5% for 30 years | $2,500 | $4,467 (monthly) |
| Common in | Short-term loans, bonds | Savings, investments, mortgages |
For short time periods the two methods produce nearly identical results. Over many years, compound interest pulls far ahead because interest starts earning interest of its own. Want to see that growth curve for your own numbers? Try the Compound Interest Calculator.
Simple interest is interest calculated only on the original principal amount, for the entire term of a loan or deposit. Unlike compound interest, it never earns interest on previously accumulated interest, so it grows in a straight line rather than exponentially.
I = P × r × t, where P is the principal, r is the annual interest rate as a decimal, and t is the time in years. The total amount owed or earned is A = P + I, or equivalently A = P × (1 + r × t).
Convert months to years by dividing by 12 before applying the formula: I = P × r × (months / 12). For example, 6 months is 0.5 years. Our calculator lets you enter time directly in months and does this conversion automatically.
Simple interest is calculated only on the principal, so it grows linearly. Compound interest is calculated on the principal plus all previously accumulated interest, so it grows exponentially. Over long periods compound interest produces significantly larger totals for the same rate.
Simple interest is common in short-term personal loans, car loans, certain bonds, add-on interest consumer loans, and some certificates of deposit. It is also the standard method taught in introductory finance and used for quick manual estimates.
I = 5000 × 0.04 × 3 = $600 in interest. The total amount after 3 years is $5,000 + $600 = $5,600.
Occasionally, but most savings accounts and CDs use compound interest because it grows the depositor's balance faster. Simple interest is more common on the lending side, where it keeps a borrower's total cost lower and easier to predict.
Rearrange the formula: r = I / (P × t). For example, if $200 interest was earned on a $2,000 principal over 2 years, r = 200 / (2000 × 2) = 0.05, or 5% annually.
Rearrange the formula: t = I / (P × r). For example, if $450 interest accrues on a $3,000 principal at 5% annually, t = 450 / (3000 × 0.05) = 3 years.
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