How simple interest works
Simple interest is charged or earned only on the original amount, the principal. The interest is not added to the balance, so it never earns interest of its own. Every year brings the same amount of interest, and the total grows in a straight line. That makes it easy to work out by hand, and easy to check a quote from a lender or a bank.
An example: $10,000 at 5% a year for 3 years earns 10,000 × 0.05 × 3 = $1,500 in interest, so the total amount is $11,500. Each year adds $500, the same as the year before.
Solve for the principal, rate or time
The simple interest formula has four parts, so if you know three of them you can find the fourth. Pick it under Solve for and enter the rest. When you know the total amount rather than the interest, switch the known amount to Total and the calculator subtracts the principal for you.
Say a friend paid back $5,600 on a $5,000 loan after 2 years. The interest is $600, so the yearly rate was 600 ÷ (5,000 × 2) = 6%. Or say you want $300 of interest from a $4,000 deposit at 5%: the time is 300 ÷ (4,000 × 0.05) = 1.5 years, which is 18 months.
Days, months and the 360 or 365-day year
The rate in the formula is a yearly rate, so the time has to be in years too. Months are easy: 18 months is 18 ÷ 12 = 1.5 years. Days need a decision about how many days a year has. Dividing by 365 counts a real calendar year. Dividing by 360 treats the year as twelve months of 30 days, which gives each day a slightly bigger share of the yearly rate.
For $10,000 at 6% over 90 days, a 365-day year gives $147.95 of interest and a 360-day year gives $150.00. The difference looks small, but it adds up on large balances. Counting every day of a full calendar year against a 360-day year works out to 6.083% instead of 6%. Loan and deposit agreements state which day count they use, so check yours and pick the same one in the calculator. The choice only appears when you enter the time in days, because months and years do not depend on it.
Simple vs. compound interest
With compound interest, the interest is added to the balance at regular intervals and then earns interest itself. In the first year the two methods are close. Over longer periods compound interest pulls ahead, because each year's interest is figured on a bigger balance. The table shows $10,000 at 5% a year, with the compound interest added monthly:
| Years | Simple interest | Compound interest | Difference |
|---|---|---|---|
| 1 | $500 | $512 | $12 |
| 5 | $2,500 | $2,834 | $334 |
| 10 | $5,000 | $6,470 | $1,470 |
| 20 | $10,000 | $17,126 | $7,126 |
| 30 | $15,000 | $34,677 | $19,677 |
The calculator shows the same comparison for your own numbers, with yearly, quarterly, monthly or daily compounding. To plan savings with regular deposits, where compounding does most of the work, use the compound interest calculator.
Interest per year, month and day
Because simple interest grows by the same amount every year, it is easy to break down. The interest per year is P × r, the interest per month is P × r ÷ 12, and the interest per day is P × r ÷ 365, or ÷ 360 with a 360-day year. On $10,000 at 5% that is $500 a year, about $41.67 a month and about $1.37 a day. The figures under the result show these amounts for your own numbers, which helps when you want to know what one more month or one more day adds. The table below the result then lists the interest for every year, with a shorter last row when the time does not end on a full year.
Simple interest and loans
Most installment loans are paid back in equal monthly payments, and each month's interest is figured on the balance that is still owed. As the balance falls, so does the interest, so the total interest is less than P × r × t on the original amount for the full term. To see the payment, the total interest and the payoff schedule of such a loan, use the loan calculator. If a loan comes with fees, the APR calculator shows its annual percentage rate next to the interest rate.
How to use the simple interest calculator
- 1Choose what to find under Solve for: the interest, the principal, the rate or the time.
- 2Enter the values you know. Pick Days, Months or Years for the time, and for days choose a 365 or 360-day year. When you solve for something else, enter the interest or the total amount you know.
- 3Read the result with the total amount, the interest per year and the year-by-year table, and compare it with compound interest at the same rate. Copy the result, save the table as CSV or copy a link.
Frequently asked questions
What is the simple interest formula?
I = P × r × t. P is the principal, r the annual interest rate as a decimal (5% is 0.05) and t the time in years. The total you end up with is A = P + I, or P × (1 + r × t). For $10,000 at 5% for 3 years the interest is 10,000 × 0.05 × 3 = $1,500 and the total is $11,500.
How do I calculate simple interest for months or days?
Turn the time into years first. Divide months by 12 and days by 365, or by 360 if your agreement uses a 360-day year. Six months at 5% on $10,000 is 10,000 × 0.05 × 0.5 = $250. The calculator does the conversion for you when you pick Days, Months or Years.
What is the difference between a 360-day and a 365-day year?
It changes the interest per day. With 365 days, a day of interest is the yearly rate divided by 365. With 360 days, it is the yearly rate divided by 360, which is a little more, so the same number of days costs or earns slightly more interest. Your loan or account agreement states which day count it uses.
How do I find the principal, rate or time?
Rearrange the formula. Principal: P = I ÷ (r × t). Rate: r = I ÷ (P × t). Time: t = I ÷ (P × r). If you know the total amount instead of the interest, subtract the principal first, or for the principal use P = A ÷ (1 + r × t). Pick what you want to find under Solve for and the calculator does it.
Is simple interest better than compound interest?
It depends on which side you are on. When you borrow, simple interest costs less, because interest is never charged on interest. When you save, compound interest earns more, because the interest you already earned starts earning too. The gap grows with time and with the rate, as the comparison under the result shows.
Does the calculator include taxes or fees?
No. It shows the interest from the principal, rate and time you enter. Taxes on interest income, account fees or loan fees are not part of the result.