Simple Interest Calculator
Calculate simple interest on a principal over any period, and see how far it falls behind the same rate compounded.
How it works
Simple interest is charged on the original principal for the whole term. It never earns interest on interest, so the amount added each year is identical — the balance grows in a straight line rather than a curve.
That makes it easy to calculate and, over any real length of time, noticeably cheaper for a borrower than the same rate compounded. It shows up on short-term and flat-rate lending, some bonds, and most textbook questions.
If a product quotes simple interest over several years, compare it against the compound equivalent before assuming the headline rate tells the whole story. The gap widens every year.
The formula
Interest
I = P × R × T ÷ 100
P principal, R annual rate, T years.
Total
A = P + I
Compound, for contrast
A = P × (1 + R/100)^T
Worked examples
| Scenario | Working | Result |
|---|---|---|
| 10,000 at 6% for 3 years | 10000 × 6 × 3 ÷ 100 | 1,800 interest, 11,800 total |
| The same compounded yearly | 10000 × 1.06³ | 11,910 — 110 more |
| Over 20 years instead | Simple vs compound | The gap becomes very large |
When you'd use it
- Checking a flat-rate loan quote
- Working out interest on a short-term deposit
- Coursework using the P × R × T formula
- Seeing what compounding is actually worth
Common questions
When is interest simple rather than compound?
Usually on short-term or flat-rate products, some bonds paying interest out rather than reinvesting it, and in textbook problems. Most savings accounts, credit cards and mortgages compound — check the terms rather than assuming.
Is simple interest always cheaper for a borrower?
At the same nominal rate and term, yes, and the advantage grows with time. But lenders know this, so a simple-interest product often carries a higher headline rate. Compare the total repayable, not the percentage.
How do I handle a term in months?
Convert to years by dividing by 12 — six months is 0.5. The formula needs the time in the same unit as the rate, which is normally per year.