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Savings & Investing

Simple Interest Calculator

Calculate simple interest on a loan or deposit, and see exactly how it differs from compound interest over the same period.

USD

The amount deposited or borrowed

%
years

Use 0.5 for six months

Interest earned
$3,000.00
Final total
$13,000.00
With monthly compounding
$13,488.50

I = P ร— r ร— t โ†’ $10,000.00 ร— 6% ร— 5 = $3,000.00, or $600.00 a year.

Compounded monthly at the same rate, the balance would reach $13,488.50 instead โ€” $488.50 more, because compounding pays interest on interest.

Simple interest, and how it differs from compound

Simple interest is charged only on the original principal. The balance never earns interest on its own interest, so the amount added is the same every single year โ€” a straight line rather than a curve. That makes it easy to check by hand, and it is the basis of most short-term loans, installment agreements, and bond coupons.

The formula

I = P ร— r ร— t. Multiply the principal by the annual rate (as a decimal) and by the number of years, and you have the total interest; add it to the principal for the final amount. Because the three inputs are simply multiplied, you can rearrange the formula to solve for any of them โ€” for example the rate needed to earn a target amount isr = I รท (P ร— t).

Why the compound figure matters

The third result above runs the same principal, rate, and term with monthly compounding so you can see the gap. Over a year or two the difference is small; over a decade it becomes the whole point. The gap grows with both the rate and the term, which is why a savings product that pays interest out (simple) can badly lag one that reinvests it (compound) even when the headline rates are identical. When you compare offers, check whether interest is paid away or added back to the balance before you compare rates.

Frequently asked questions

+What is the simple interest formula?

I = P ร— r ร— t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. The final total is P + I. For 10,000 at 6% for 5 years: 10,000 ร— 0.06 ร— 5 = 3,000 interest, so 13,000 in total.

+How do I handle a term in months or days?

Convert it to a fraction of a year: 6 months is 0.5, 18 months is 1.5, and 90 days is roughly 0.25. Enter that fraction in the term box. Short-term lenders sometimes count days over 360 rather than 365, which nudges the figure slightly โ€” check which convention your agreement uses.

+Where is simple interest actually used?

Short-term personal and payday loans, many car loans and installment plans, most bonds and treasury bills for their coupon payments, and some fixed deposits that pay interest out rather than reinvesting it. Anything that pays interest into a separate account rather than back onto the balance behaves like simple interest.

+Which is better, simple or compound interest?

It depends which side of the deal you're on. As a saver or investor you want compounding, because interest starts earning its own interest. As a borrower you want simple interest, because your debt grows in a straight line rather than accelerating. The comparison figure above shows exactly how much that choice is worth over your term.

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๐Ÿ“ˆCompound Interest๐ŸŽฏSavings Goal๐ŸŒดRetirement