Simple Interest Calculator
Calculate simple interest, or solve for principal, rate, or time — and see how it compares to compound interest
What Is Simple Interest?
Simple interest is interest calculated only on the original principal amount — it never earns interest on itself. That makes it grow at a constant, predictable rate each period, unlike compound interest, which accelerates because it's calculated on a growing balance.
How to Use
- Choose what you want to solve for — Interest, Principal, Rate, or Time
- Enter the values you already know
- Select a time unit (Years, Months, or Days)
- Click "Calculate" to see your result, plus a compound-interest comparison
The Simple Interest Formula
I = P × r × t
Where I is the interest earned, 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 accumulated is A = P + I.
Solving for Other Variables
- Principal: P = I ÷ (r × t)
- Rate: r = I ÷ (P × t)
- Time: t = I ÷ (P × r)
This calculator handles all four rearrangements automatically — just tell it which value you're solving for.
Simple Interest vs. Compound Interest
Simple interest adds the same dollar amount every period, since it's always based on the original principal. Compound interest adds a growing amount each period, since previously earned interest becomes part of the base for future calculations. Over short periods the difference is minor; over years or decades, compounding pulls dramatically ahead — this calculator shows that comparison automatically with every result.
Ordinary vs. Exact Interest (360 vs. 365 Days)
When working with a time period in days, banks historically used a simplified "ordinary interest" convention treating the year as 360 days (12 equal 30-day months) to make hand calculations easier. "Exact interest" instead uses the true 365-day calendar year. Ordinary interest produces a slightly higher interest amount for the same number of days, since dividing by 360 instead of 365 yields a larger fraction of a year.
Where Simple Interest Is Used
- Short-term promissory notes and IOUs
- Some add-on interest auto and personal loans
- Certain bonds and short-term certificates
- Educational examples for introducing interest concepts before compound interest
Common Mistakes to Avoid
- Forgetting to convert the rate from a percentage to a decimal before multiplying (6% is 0.06, not 6).
- Mixing up which day-count convention a lender actually uses.
- Assuming a loan is simple interest when it's actually compounding — always check the loan terms.
- Forgetting that "total amount" includes both principal and interest, not interest alone.
Worked Examples
Find Interest
Inputs: P = $5,000, rate = 6%, time = 3 years
Result: Interest = $900, Total = $5,900
The classic textbook case: I = P × r × t = 5000 × 0.06 × 3.
Short-Term Loan (Days)
Inputs: P = $10,000, rate = 8%, time = 90 days (Ordinary/360)
Result: Interest = $200, Total = $10,200
Using the 360-day banking convention, 90 days = 0.25 of a year.
Find Principal
Inputs: Interest = $1,200, rate = 5%, time = 4 years
Result: Principal = $6,000
Rearranged formula: P = I ÷ (r × t) = 1200 ÷ (0.05 × 4).
Find Rate
Inputs: Principal = $8,000, Interest = $960, time = 2 years
Result: Rate = 6%
Rearranged formula: r = I ÷ (P × t) = 960 ÷ (8000 × 2), then ×100 for a percentage.
Find Time
Inputs: Principal = $4,000, rate = 7%, Interest = $840
Result: Time = 3 years
Rearranged formula: t = I ÷ (P × r) = 840 ÷ (4000 × 0.07).
Simple vs. Compound Over 20 Years
Inputs: P = $10,000, rate = 6%, time = 20 years
Result: Simple: $12,000 interest ($22,000 total) — Compound (annual): $22,071 interest ($32,071 total)
Same principal, rate, and term — compounding alone adds over $10,000 in extra interest across two decades.
Frequently Asked Questions
What is simple interest?
Simple interest is interest calculated only on the original principal amount, for the entire time period, using the formula I = P × r × t. Unlike compound interest, it never adds previously earned interest back into the base for future calculations.
What's the difference between simple and compound interest?
Simple interest grows by the same fixed amount every period because it always uses the original principal. Compound interest grows by an increasing amount each period because it's calculated on the principal plus all previously earned interest — which is why compound interest overtakes simple interest more and more as time goes on.
Where is simple interest actually used?
Simple interest commonly appears in short-term promissory notes, certain personal and auto loans, some bonds, and add-on interest consumer loans. Most everyday savings accounts, credit cards, and mortgages use compound interest instead.
How do I find the principal if I know the interest, rate, and time?
Rearrange the formula to P = I ÷ (r × t). Select "Find Principal" above, enter the interest amount, rate, and time, and the calculator does this for you automatically.
How do I find the interest rate if I know the principal, interest, and time?
Rearrange the formula to r = I ÷ (P × t), then convert to a percentage. Select "Find Rate" above to calculate this instantly from your numbers.
How do I find the time period if I know the principal, rate, and interest?
Rearrange the formula to t = I ÷ (P × r). Select "Find Time" above, and the result is shown in years, with month and day equivalents for convenience.
What's the difference between the Ordinary (360-day) and Exact (365-day) conventions?
These are two banking conventions for converting a day-based time period into years. Ordinary interest assumes a 360-day year (30-day months), which was historically easier to calculate by hand and is still used by some lenders; exact interest uses the true 365-day calendar year. Ordinary interest produces a slightly higher interest amount for the same number of days.
Does simple interest ever compound over time?
No — by definition, simple interest is never added back into the principal for future calculations. If interest starts earning its own interest, the calculation has become compound interest, not simple interest.
Is simple interest better for borrowers or lenders?
Generally better for borrowers: since interest is only ever charged on the original amount, a borrower under a simple-interest loan pays less total interest than under an equivalent compound-interest loan at the same rate and term.
Why does compound interest earn so much more over long periods?
Because compound interest is recalculated on a growing balance every period, its growth accelerates over time, while simple interest grows at a constant, linear rate. Over short periods the difference is small, but over decades it becomes dramatic — see the worked example below comparing the two over 20 years.
Can I use months or days instead of years for the time period?
Yes — select Months or Days from the time unit options, and the calculator converts automatically using 12 months per year, and either a 360-day or 365-day year (your choice) for day-based calculations.
Is this calculator accurate for real bank loans?
The math is exact for true simple-interest agreements, but always confirm which day-count convention and compounding method your specific lender or bond actually uses, since terminology and conventions vary by institution and country.
Conclusion
Simple interest is the foundation every other interest concept builds on — understand I = P × r × t, and compound interest is just this same idea applied repeatedly to a growing balance. Use this calculator to check your homework, evaluate a short-term loan, or simply see how much compounding would be worth if you had the choice.