Simple interest calculator
Simple interest is earned (or charged) only on the original principal. It does not compound: prior-period interest does not itself earn interest. Use it for short notes, quick linear estimates, teaching examples, and as a baseline before you model compound interest or real loan schedules.
With $10,000 at 5% annual for 2 years:
- Interest earned: $1,000
- Total amount: $11,000
- Average monthly interest: $41.67
- Average daily interest: $1.37
Formula: I = P × r × t → 10,000 × 0.05 × 2 = 1,000.
Formula
I = P × r × t
where: P = principal r = annual rate as a decimal (5% → 0.05) t = time in years (months = n/12; days ≈ n/365) Total amount = P + I
Step-by-step example (defaults)
- Principal P = $10,000
- Rate r = 5% = 0.05
- Time t = 2 years
- Interest I = 10,000 × 0.05 × 2 = $1,000
- Total = 10,000 + 1,000 = $11,000
- Monthly interest ≈ 1,000 / 24 = $41.67; daily ≈ 1,000 / 730 = $1.37
Reference table (same engine rounding)
Amounts rounded to 2 decimals like the calculator. Enter your own numbers above for an exact case.
| Principal | Annual rate | Time (years) | Interest | Total amount | Interest / month | Interest / day |
|---|---|---|---|---|---|---|
| $10,000 | 5% | 2 | $1,000.00 | $11,000.00 | $41.67 | $1.37 |
| $10,000 | 12% | 1 | $1,200.00 | $11,200.00 | $100.00 | $3.29 |
| $5,000 | 18% | 0.5 (6 months) | $450.00 | $5,450.00 | $75.00 | $2.47 |
| $15,000 | 8% | 3 | $3,600.00 | $18,600.00 | $100.00 | $3.29 |
| $8,000 | 15% | 1.5 | $1,800.00 | $9,800.00 | $100.00 | $3.29 |
| $50,000 | 6% | 1 | $3,000.00 | $53,000.00 | $250.00 | $8.22 |
Simple vs compound (why it matters)
Same base $10,000 at 12% for 5 years:
| Method | Interest accrued | Ending balance | Gap vs simple |
|---|---|---|---|
| Simple | $6,000.00 | $16,000.00 | : |
| Compound (annual) | $7,623.43 | $17,623.43 | +$1,623.43 |
Over short horizons the gap is small; over several years compounding pulls ahead. For savings/investment growth use compound interest. For installment loan cost use a personal loan payment and an amortization schedule.
When is simple interest used?
- Short-term loans and promissory notes
- Rough late-fee / legal-interest estimates
- Classroom problems and linear “stated rate” comparisons
- Contrasting a non-compounding rate vs monthly card APR
Months and days
This calculator expects years (decimals allowed):
| Real period | Value in years | | --- | --- | | 6 months | 0.5 | | 3 months | 0.25 | | 18 months | 1.5 | | 90 days | ≈ 0.2466 (90/365) | | 1 year | 1 |
Example for 6 months: $5,000 × 18% × 0.5 = $450 (table row).
Common mistakes
- Treating an annual rate as a monthly rate (12% per year ≠ 12% per month)
- Applying simple interest to a product that compounds monthly
- Ignoring fees, insurance, and APR/APY when comparing offers
- Mixing currencies without converting principal
- Assuming “simple = cheaper” without checking term and true compounding
What this includes (and what it doesn’t)
Includes (educational model):
- I = P × r × t with annual r and t in years
- Total amount plus average monthly/daily interest over the term
- Reference scenarios in the table
May not match your contract:
- Daily/monthly compounding
- Origination fees, insurance, penalties
- Lender APR/APY disclosures
- 360-day commercial year conventions
- Amortizing principal with mixed payments
This tool is educational. It is not credit advice or a bank quote. Actual rates, compounding, and fees depend on your contract and issuer. Verify current terms before you borrow or invest.
FAQ
I = P × r × t. Multiply principal by the annual rate as a decimal and by time in years. Example: $10,000 × 0.05 × 2 = $1,000.
Simple always uses the original principal. Compound adds earned interest to the base so interest earns interest. At 12% for 5 years on $10,000, compounding adds about $1,623 more than simple (see table).
Convert months to years: months ÷ 12. Six months = 0.5 years, then apply I = P × r × t.
Only as a linear approximation. Cards usually compound monthly and add fees. To pay down a balance use the credit card payment or debt payoff calculators.
Here it is the average of total period interest divided by days in the term. Lenders may use 360/365 day counts or compound differently.
Compare payment and total cost with a personal loan calculator, check effective annual rate, and model extra payments with early loan payoff.