Simple Interest Calculator guide
Calculate simple interest with the formula I = P × r × t. Enter the principal, annual rate, and time in years, months, or days to get the interest, the total, the daily interest, and what the same deal would earn with monthly compounding.
The formula, term by term
Simple interest I = P × r × t. P is the principal, the amount borrowed or invested. r is the annual interest rate written as a decimal, so 5 percent is 0.05. t is the time in years. The total you pay back or end up with is A = P + I, which can also be written A = P(1 + rt).
The time unit is the part people get wrong. The rate is almost always annual, so time must be in years. The calculator converts for you: months are divided by 12 and days by 365. It also shows interest per day, P × r ÷ 365, which is how lenders accrue interest between payments.
Worked examples
A family loan: you lend your brother $10,000 at 5 percent for 3 years, with all interest paid at the end. I = 10,000 × 0.05 × 3 = $1,500. He repays $11,500. The IRS publishes minimum Applicable Federal Rates each month for family loans; charging below them on loans over $10,000 can create gift and imputed-interest issues, so check the current AFR before setting a rate.
Months: $5,000 at 8 percent for 18 months. Time is 18 ÷ 12 = 1.5 years. I = 5,000 × 0.08 × 1.5 = $600.
Days: $10,000 at 6 percent for 90 days. With a 365-day year, I = 10,000 × 0.06 × 90 ÷ 365 = $147.95. Many banks and commercial loans use a 360-day year, the banker's year, which gives $150.00. That $2.05 difference grows with the balance, so ask which convention a lender uses.
Simple versus compound interest
Compound interest pays interest on previous interest. Over short periods the difference is small: $10,000 at 5 percent for 3 years earns $1,500 simple and $1,614.72 compounded monthly, about 8 percent more. The calculator shows both side by side.
Over long periods the gap is enormous. The same $10,000 at 5 percent for 30 years earns $15,000 in simple interest but about $34,677 compounded monthly. That is why savings accounts and retirement investments are described in compound terms, and why simple interest mostly shows up in short-term deals.
When you borrow, simple interest is better for you. When you save, compound is better. A loan quoted as "simple interest" with the full P × r × t added up front is called an add-on loan, and it is costlier than it sounds, because you pay interest on the full principal even as you repay it.
Where simple interest shows up in the US
Auto loans and mortgages accrue interest daily on the current balance using simple interest math, then amortize it with fixed payments. Paying early in the month or making extra principal payments cuts interest immediately. Paying late means more of your payment goes to interest.
Treasury bills are sold at a discount and quoted with simple-interest conventions: a 26-week bill's discount rate is based on a 360-day year. Many CDs and bonds pay interest out on a schedule rather than reinvesting it, so the interest you receive is simple interest on the principal.
Truth in Lending rules require lenders to disclose the APR on consumer credit, so you can compare simple, add-on, and compound structures on the same footing. Always compare APRs, not the headline rate.
Common mistakes
Using the percentage instead of the decimal. 5 × 10,000 × 3 = 150,000, which is obviously wrong; the rate must be 0.05. The calculator takes the percent and converts it for you.
Mixing a monthly rate with years. Credit card rates are sometimes quoted monthly (1.5 percent a month is 18 percent a year). Convert to an annual rate before using the formula.
Assuming a loan's total interest is P × r × t. For amortizing loans it is much less, because the balance shrinks. A $20,000, 5-year car loan at 7 percent costs about $3,761 in interest, not $7,000. Use the loan payment calculator for those.
How we calculate: sources
Frequently asked questions
What is the simple interest formula?
I = P × r × t, where P is the principal, r is the annual rate as a decimal, and t is time in years. $10,000 at 5% for 3 years earns 10,000 × 0.05 × 3 = $1,500.
How do I calculate simple interest for months or days?
Convert time to years first. 18 months is 1.5 years, so $5,000 at 8% earns $600. For days, divide by 365: $10,000 at 6% for 90 days earns $147.95 (or $150.00 with a 360-day banker's year).
What is the difference between simple and compound interest?
Simple interest is paid only on the original principal. Compound interest is also paid on earlier interest. $10,000 at 5% for 3 years earns $1,500 simple, but $1,614.72 compounded monthly.
How do I find the rate or time instead?
Rearrange the formula. Rate r = I ÷ (P × t), and time t = I ÷ (P × r). Earning $1,500 on $10,000 over 3 years means r = 1,500 ÷ 30,000 = 5%.
Where is simple interest used in real life?
Short-term personal loans between people, some bonds and CDs that pay interest out rather than reinvesting it, Treasury bill discount math, and the daily interest calculation on auto loans and mortgages, which charge interest only on the current balance.
Are car loans simple interest?
Most US auto loans are called simple interest loans: interest accrues daily on the remaining balance. But because the balance falls with each payment, total interest is much lower than P × r × t on the original amount.
Is this financial advice?
No. It is an educational calculator.
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How much interest will $10,000 earn in a year?
At simple interest, $10,000 × rate. At 5% that is $500, at 4% it is $400. Compounded monthly, 5% earns about $511.62 in the first year.
What is the 360-day banker's year?
A convention where a year is treated as 360 days (12 months of 30 days) for interest calculations. It slightly increases the interest charged compared with a 365-day year, about 1.4% more.