Simple interest calculator
Calculate simple interest on any principal amount. See the full formula breakdown with I = P × r × t.
Simple interest formula
I = P × r × t
Where: I = interest earned, P = principal (initial amount), r = annual interest rate (as decimal), t = time in years.
Total amount: A = P + I = P × (1 + r × t)
Example calculation
$5,000 at 4.5% for 3 years:
I = $5,000 × 0.045 × 3 = $675.00
Total = $5,000 + $675 = $5,675.00
Simple vs compound interest
Simple interest is calculated only on the original principal. It grows linearly — the same amount of interest every year.
Compound interest is calculated on the principal plus accumulated interest. It grows exponentially — each year earns more than the last.
For $5,000 at 4.5% over 3 years: simple interest = $675, compound interest (monthly) ≈ $720. The difference grows dramatically over longer periods.
When is simple interest used?
Short-term loans: Many personal and auto loans use simple interest.
Treasury bills: Short-term government securities.
Certificates of deposit: Some CDs pay simple interest.
Student loan interest: During deferment, federal student loans accrue simple interest.
Frequently asked questions
How do I calculate monthly simple interest?
Divide the annual rate by 12. For 4.5% annual: monthly rate = 0.375%. Or use the formula with t in months: I = P × r × (months/12).
What if the time period is in months or days?
Convert to years: 6 months = 0.5 years, 90 days = 90/365 ≈ 0.2466 years. Then use the standard formula.