Use this Simple Interest Calculator to estimate interest earned or paid on a loan or investment
using the simple interest formula. You can calculate the ending balance, the starting principal,
or how long it will take to reach a target balance.
Result breakdown
Calculation Summary
How this Simple Interest Calculator works
This tool uses the simple interest formula to estimate how much interest you earn or pay over time.
Simple interest is calculated only on the original principal and does not compound.
Simple interest formula
The basic formula for simple interest is:
Simple interest = Principal x Interest rate x Time
Simple interest examples
For example, if you invest $1,000 at 5% simple interest for 3 years, the interest is
1,000 x 0.05 x 3 = $150 and your ending balance is $1,150. If you borrow $2,500 at 8%
simple interest for 18 months (1.5 years), the interest is 2,500 x 0.08 x 1.5 = $300
and the total amount you repay is $2,800.
What each mode calculates
Ending balance: you enter principal, rate, and term. The calculator shows the simple
interest and final balance (principal + interest).
Principal: you enter the desired ending balance, rate, and term. The calculator works
backwards to find the required starting principal.
Term: you enter the starting principal, ending balance, and rate. The calculator finds
how long it will take to reach that balance, shown in years and months.
When to use simple interest
Simple interest is most often used for short-term loans, some car loans, and basic interest calculations
where the interest is not added back to the principal. For savings accounts and most mortgages, you would
typically use compound interest instead.
How to use the Simple Interest Calculator
This tool is designed for flexibility. Depending on which option you choose in the
"I want to calculate" dropdown, the calculator will ask for the other three variables.
To calculate the Ending balance, input the initial Principal, the Interest Rate (and period), and the Term (in years or months).
To find the required Principal, input the desired End Balance, the Interest Rate, and the Term.
To find the required Term, input the desired End Balance, the initial Principal, and the Interest Rate.
Interest rate definition
The interest rate is the percentage amount charged by a lender or paid to a saver over a specific period.
It represents the cost of borrowing money or the reward for lending money.
Nominal Rate: This is the advertised rate, usually expressed annually (e.g., 5% per year).
Simple Interest: The interest is calculated only on the original amount you borrowed or invested (the principal).
Compound Interest: The interest is calculated on the principal *plus* any interest previously earned.
Simple and compound interest
The key difference between simple and compound interest is what the interest is applied to:
Simple Interest is a fixed amount based only on the original principal. It results in linear growth.
Compound Interest is calculated on the principal plus accumulated interest. It results in exponential growth.
For long-term investments, the effects of compounding are significant, making compound interest much more powerful.
You can use our Compound Interest Calculator to see the difference.
The real-life examples of simple interest loans
While compound interest is common in investments and many long-term loans (like mortgages), simple interest is often used in the following real-life financial products:
Short-term Personal Loans: Some small, fixed-term personal loans use a simple interest calculation.
Certificates of Deposit (CDs) / GICs (Guaranteed Investment Certificates): Many certificates of deposit pay out interest based on a simple annual rate applied to the principal.
Bonds: The annual coupon payments on most standard bonds are calculated using simple interest on the bond's face value.
Some Auto Loans: Depending on the lender and jurisdiction, some auto loans use simple interest, where interest accrues daily on the outstanding principal balance.
Interest rate calculators in everyday life
Interest rate calculators are essential tools for managing personal finance, helping you to:
Check a Loan: Determine the total cost of borrowing before you commit to a loan.
Compare Offers: Easily compare interest payments between different loan or investment products.
Plan Savings: Project how much your investment will grow over time, enabling better retirement or goal planning.
Verify Statements: Ensure that the interest charged by a lender or paid by an investment accurately matches the agreed-upon rate and terms.
Frequently Asked Questions (FAQs)
What is simple interest?
Simple interest is interest calculated only on the original principal amount. Unlike compound interest,
it does not include interest on previously earned interest. The formula is: Interest = Principal x Rate x Time.
How do I calculate simple interest?
To calculate simple interest, multiply your principal amount by the interest rate (as a decimal) and
the time period in years. For example, $1,000 at 5% for 3 years equals $1,000 x 0.05 x 3 = $150 in interest.
What is the difference between simple and compound interest?<
Simple interest is calculated only on the principal amount, resulting in linear growth. Compound interest
is calculated on the principal plus accumulated interest, resulting in exponential growth. Over time,
compound interest generates significantly more returns than simple interest.
When is simple interest used?
Simple interest is commonly used for short-term personal loans, some auto loans, bonds, and certificates
of deposit (CDs or GICs). It's typically applied to financial products with fixed terms where interest
is paid out regularly rather than reinvested.
Can I use this calculator for monthly interest rates?
Yes, this calculator supports both annual and monthly interest rates. Select "per month" from the
dropdown menu next to the interest rate field, and the calculator will adjust the calculation accordingly.
How do I calculate the principal needed to reach a target balance?
Select "Principal" from the "I want to calculate" dropdown. Enter your target end balance, interest rate,
and term. The calculator will work backwards to determine how much principal you need to start with to
reach your goal.
Is simple interest better than compound interest?
For borrowers, simple interest is better because you pay less over time. For investors, compound interest
is better because your money grows faster. Simple interest is more transparent and easier to calculate,
while compound interest is more common in long-term investments and savings accounts.
How accurate is this simple interest calculator?
This calculator uses the standard simple interest formula and provides accurate results based on the
inputs you provide. However, it assumes consistent interest rates and does not account for fees, taxes,
or other factors that may affect real-world returns.
