Simple Interest Calculator
Calculates interest earned or owed on a principal amount at a flat rate over time
The initial amount of money
Yearly interest rate as a percentage
Length of time for the investment or loan
Whether the time period is in years or months
Enter your principal, rate, and time to calculate interest
Principal plus total interest earned
Interest earned per month on average
Frequently Asked Questions
What is simple interest?
Simple interest is calculated only on the original principal amount. Unlike compound interest, it does not earn interest on accumulated interest. The formula is I = P x R x T, where P is principal, R is the annual rate, and T is time in years.
How is simple interest different from compound interest?
Simple interest is always calculated on the original principal. Compound interest is calculated on the principal plus previously earned interest. Over time, compound interest grows much faster. A $1,000 loan at 5% simple interest costs $50 per year every year, while compound interest charges more each period.
When is simple interest used?
Simple interest is common for short-term loans, auto loans, and some personal loans. Treasury bills, certificates of deposit, and some bonds also use simple interest. Mortgages and credit cards typically use compound interest instead.
How do I convert months to years for simple interest?
Divide the number of months by 12. For example, 18 months equals 1.5 years. A $5,000 loan at 6% simple interest for 18 months would earn $5,000 x 0.06 x 1.5 = $450 in interest.
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