How the Simple Interest Calculator Works
Interest is the price of using money. If you borrow, you pay it. If you save or lend, you earn it. Simple interest is the easiest kind: it is always worked out on the original amount only, and never on interest that was added earlier. The Simple Interest Calculator finds the interest and the total for any amount, rate and time. It can also solve for the rate, the time or the starting amount.
What you enter
- Principal: the amount you borrow, lend or deposit at the start.
- Interest rate: the rate for one year, as a percentage.
- Time: how long the money is used, in years, months or days.
The formula
interest = principal x rate x time total amount = principal + interest = principal x (1 + rate x time)
The rate is written as a decimal (5% is 0.05), and the time is in years. If the time is in months, divide by 12. If it is in days, divide by 365.
The same formula can be turned around to find any one of the four values:
rate = interest / (principal x time) time = interest / (principal x rate) principal = interest / (rate x time)
A worked example
You deposit $10,000 at 5% simple interest for 3 years.
| Result | Amount |
|---|---|
| Interest ($10,000 x 0.05 x 3) | $1,500.00 |
| Total amount at the end | $11,500.00 |
| Interest each year | $500.00 |
Chart: principal and interest
████████████████████████████████████████ $11,500 ■ Principal $10,000 ■ Interest $1,500
Time in months or days
For a short time, the calculator turns the time into a part of a year:
| Time | As a part of a year | Interest on $10,000 at 5% |
|---|---|---|
| 45 days | 45 / 365 | $61.64 |
| 90 days | 90 / 365 | $123.29 |
| 6 months | 6 / 12 | $250.00 |
| 18 months | 18 / 12 | $750.00 |
Some lenders count a year as 360 days instead of 365. That makes each day's interest slightly larger. Check which method your lender uses.
Solving for a missing value
Using the same example, where the interest is $1,500:
| You know | Find | Calculation | Answer |
|---|---|---|---|
| Principal $10,000, 3 years, interest $1,500 | Rate | 1,500 / (10,000 x 3) | 5% |
| Principal $10,000, 5%, interest $1,500 | Time | 1,500 / (10,000 x 0.05) | 3 years |
| 5%, 3 years, interest $1,500 | Principal | 1,500 / (0.05 x 3) | $10,000 |
- You know: Principal $10,000, 3 years, interest $1,500
Find: Rate
Calculation: 1,500 / (10,000 x 3)
Answer: 5% - You know: Principal $10,000, 5%, interest $1,500
Find: Time
Calculation: 1,500 / (10,000 x 0.05)
Answer: 3 years - You know: 5%, 3 years, interest $1,500
Find: Principal
Calculation: 1,500 / (0.05 x 3)
Answer: $10,000
Interest grows in a straight line
With simple interest, you earn the same amount every year. The interest is proportional to the time, so twice the time means twice the interest.
| Time | Interest | Total |
|---|---|---|
| 1 year | $500 | $10,500 |
| 3 years | $1,500 | $11,500 |
| 5 years | $2,500 | $12,500 |
| 10 years | $5,000 | $15,000 |
| 20 years | $10,000 | $20,000 |
| 30 years | $15,000 | $25,000 |
1 year █ $500 3 years ████ $1,500 5 years ███████ $2,500 10 years █████████████ $5,000 20 years ███████████████████████████ $10,000 30 years ████████████████████████████████████████ $15,000
Simple interest and compound interest
Compound interest is worked out on the principal and on the interest already earned. The interest grows on itself. For the first year the two are the same, but over time compound interest pulls far ahead. The same $10,000 at 5%:
| Time | Simple interest total | Compound interest total (yearly) | Difference |
|---|---|---|---|
| 1 year | $10,500.00 | $10,500.00 | $0.00 |
| 3 years | $11,500.00 | $11,576.25 | $76.25 |
| 5 years | $12,500.00 | $12,762.82 | $262.82 |
| 10 years | $15,000.00 | $16,288.95 | $1,288.95 |
| 20 years | $20,000.00 | $26,532.98 | $6,532.98 |
| 30 years | $25,000.00 | $43,219.42 | $18,219.42 |
- Time: 1 year
Simple interest total: $10,500.00
Compound interest total (yearly): $10,500.00
Difference: $0.00 - Time: 3 years
Simple interest total: $11,500.00
Compound interest total (yearly): $11,576.25
Difference: $76.25 - Time: 5 years
Simple interest total: $12,500.00
Compound interest total (yearly): $12,762.82
Difference: $262.82 - Time: 10 years
Simple interest total: $15,000.00
Compound interest total (yearly): $16,288.95
Difference: $1,288.95 - Time: 20 years
Simple interest total: $20,000.00
Compound interest total (yearly): $26,532.98
Difference: $6,532.98 - Time: 30 years
Simple interest total: $25,000.00
Compound interest total (yearly): $43,219.42
Difference: $18,219.42
10 years Simple ██████████████ $15,000 Compound ███████████████ $16,289 20 years Simple ███████████████████ $20,000 Compound █████████████████████████ $26,533 30 years Simple ███████████████████████ $25,000 Compound ████████████████████████████████████████ $43,219
Green is simple interest, and blue is compound interest. If you are saving, you want compound interest. If you are borrowing, you would rather have simple interest.
Where simple interest is used
- Car loans and some personal loans, where interest is charged on the unpaid balance each period. Here the calculator gives the simple interest for one period, not for the whole loan.
- Short-term loans and notes, such as a loan between friends, or a bond that pays a fixed coupon.
- Some savings products, such as short deposits that pay interest at the end.
- Learning and quick estimates, since it is easy to work out by hand.
Most bank savings accounts, credit cards and mortgages use compound interest or interest on a falling balance, so the total is not just principal x rate x time.
Tips
- Make sure the time and the rate use the same unit. A yearly rate needs the time in years.
- Ask the lender how interest is counted, for example 365 or 360 days, and whether it compounds.
- Compare loans by their APR, which includes fees, not only by the interest.
- Pay a loan early when it is charged on the unpaid balance, to cut the interest.
What this calculator does not include
- Compound interest, or interest that is added to the balance during the term.
- Fees, taxes and inflation.
- Loans that are repaid in installments. For these, use a loan or amortization calculator.
This tool gives an estimate for general information only. It is not financial advice. Your lender or bank sets the real interest and terms.