Simple interest is interest calculated only on the original principal, for the entire time period, without compounding. The formula is: Simple Interest = Principal × Rate × Time ÷ 100, where Rate is the annual interest rate as a percentage and Time is the duration in years. The Total Amount is simply the principal plus the interest.
Simple Interest vs. Compound Interest
Simple interest grows by the same amount every period, since it's always calculated on the original principal. Compound interest, on the other hand, is calculated on the principal plus any interest already earned, so the balance grows faster the longer it's left untouched.
Common Uses
Simple interest is commonly used for short-term loans, certain personal loans, fixed deposits, savings bonds, and some auto loans. It's straightforward to calculate and easy to verify, which is why it's popular for shorter or fixed-term agreements.
Converting Time Periods
This calculator accepts time in years, months, or days. Months are converted by dividing by 12, and days are converted by dividing by 365, before the converted time in years is applied to the formula above.
Frequently Asked Questions
Simple interest is interest calculated only on the original principal, for the entire time period, without compounding. It grows at a steady, linear rate rather than accelerating like compound interest.
Simple Interest = Principal × Rate × Time ÷ 100, where Rate is the annual interest rate as a percentage and Time is the duration in years. The Total Amount is the Principal plus the Simple Interest.
Simple interest is calculated only on the original principal, so it grows by the same amount every period. Compound interest is calculated on the principal plus any interest already earned, so it grows faster over time.
Yes. The same formula applies whether you're calculating interest owed on a simple-interest loan or interest earned on a fixed deposit, savings bond, or short-term investment.
Months are converted by dividing by 12, and days are converted by dividing by 365, to get the time period in years before applying the formula.