Simple Interest Calculator
Calculate interest earned and total amount using the simple interest formula.
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Simple Interest Formula
Where I is the interest, P is the principal, r is the annual interest rate as a decimal, and t is the time in years. The total amount at the end is A = P + I = P(1 + rt).
Example Calculation
You deposit $2,000 at 6% per year for 4 years: I = $2,000 × 0.06 × 4 = $480. Total amount: $2,000 + $480 = $2,480.
Simple vs. Compound Interest
With simple interest, the interest is only calculated on the original principal — it never grows. With compound interest, interest is added to the balance periodically, and future interest is earned on the new (larger) balance. Over long periods, compound interest grows significantly faster.
| Year | Simple Interest ($1,000 @ 5%) | Compound Interest ($1,000 @ 5%) |
|---|---|---|
| 1 | $1,050 | $1,050 |
| 2 | $1,100 | $1,102.50 |
| 5 | $1,250 | $1,276.28 |
| 10 | $1,500 | $1,628.89 |
| 20 | $2,000 | $2,653.30 |
| 30 | $2,500 | $4,321.94 |
When Is Simple Interest Used?
Simple interest is common in short-term loans (car loans, personal loans, some mortgages), savings bonds, Treasury bills, and any instrument where the interest does not compound. Credit cards and most savings accounts use compound interest instead.
Frequently Asked Questions
I = $5,000 × 0.08 × 2 = $800. Total amount = $5,000 + $800 = $5,800.
Multiply the monthly rate by 12. A 0.5%/month rate = 6% per year (for simple interest). Note: for compound interest the conversion is different.
In practice, no — but technically if you have negative principal or rate (which doesn't make real-world sense for loans/deposits), the formula produces a negative number.
Most mortgages are amortized — which uses compound interest principles. However, some short-term loans and some countries' mortgage products use simple interest. Always check your loan agreement.
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