Simple interest calculator
Simple interest is interest calculated only on the original principal, never on interest already earned.
- Formula explained step by step
- Worked examples with real figures
- 100% local math — nothing is uploaded
Simple interest calculator
Enter your numbers and press Calculate
The simple interest formula
The standard financial-math formula for simple interest is:
I = P × r × t
where I is the interest earned, P the principal, r the annual interest rate as a decimal (4% = 0.04) and t the time in years. The final amount is A = P + I, and the average monthly interest is I divided by the number of months, that is I ÷ (t × 12).
Worked example: you put $10,000 into a note paying 5% simple interest for 2 years.
- Interest: I = 10,000 × 0.05 × 2 = $1,000
- Final amount: A = 10,000 + 1,000 = $11,000
- Average monthly interest: 1,000 ÷ 24 = $41.67
The defining trait: each year's $500 of interest is always computed on the original $10,000. Under annual compounding the second year would be computed on $10,500, and the final amount would be $11,025 — $25 more. That gap looks small over two years, but it widens fast over decades, which is exactly why retirement accounts rely on compounding while short-term lending often sticks to the simple method. Run the same numbers through our compound interest calculator to see the divergence for yourself.
How to use the calculator
You only need three figures and the result updates instantly:
1. Principal: the amount you deposit or lend, for example $5,000. 2. Annual interest rate: the nominal yearly percentage. If a note advertises 4.5% APR simple interest, type 4.5. Tenths are accepted. 3. Term in years: half-years are allowed, so enter 1.5 for 18 months or 0.5 for 6 months.
The tool returns the interest earned (your total gain or cost), the final amount (principal plus interest) and the average monthly interest, handy for judging what the deal represents per month even when the actual payout happens at maturity. If the term is 0, every result is $0, as you would expect.
Two practical notes for the U.S. market: bank products are usually advertised with APY, which already bakes in compounding, while this tool works with the plain nominal rate; and if you are analyzing a mortgage or any loan repaid in monthly installments, the right model is an amortization schedule rather than simple interest — our amortization calculator handles that case.
Worked examples from real life
Sarah's certificate of deposit. Sarah parks $20,000 in an 18-month CD paying 4.5% with interest paid out at maturity rather than reinvested. Using I = P × r × t: 20,000 × 0.045 × 1.5 = $1,350 in interest. She will collect $21,350, which works out to $75 per month. Had the CD compounded monthly instead, she would have earned roughly $1,395 — about $45 more, the price of not reinvesting.
Mike's short-term loan. Mike lends a coworker $3,000 at 8% simple interest for six months. In the calculator: principal 3,000, rate 8, term 0.5. Result: $120 of interest, $3,120 repaid in total, $20 per month. Putting even informal loans in writing — amount, rate, repayment date — saves friendships, and interest received is generally taxable income that belongs on your return.
Notice the straight-line behavior in both stories: doubling the term exactly doubles the interest. That linearity is the signature of simple interest; compound interest bends upward instead, which is why the gap between the two grows dramatically over long horizons such as retirement saving.
This content is educational and is not financial or tax advice. Consult a licensed professional before committing to any financial product or private loan.
About this calculator
Unlike compound interest, each period's interest does not generate new interest: a $10,000 deposit at 3% per year earns exactly $300 every single year. In the United States this is how most auto loans and short-term personal loans accrue interest, and it is the convention behind Treasury bill discount math and many certificates of deposit that pay interest out instead of reinvesting it. This calculator uses the standard financial formula I = P × r × t and gives you three numbers at once: total interest earned, the final amount, and the average monthly interest. Enter your principal, the annual rate and the term in years, then compare the result with our compound interest calculator to see how much the picture changes once interest starts earning interest. Educational content only — not financial advice.
Frequently asked questions
What is the difference between simple and compound interest?
With simple interest, interest is always computed on the original principal: $1,000 at 5% earns $50 every year, period. With compound interest, earned interest is added to the principal and earns interest itself, so year two is computed on $1,050. Over 3 years that is $150 versus $157.63. The longer the term or the higher the rate, the wider the gap — run your own numbers through our compound interest calculator to compare.
How do I work out the monthly interest from the annual rate?
Under simple interest the conversion is proportional: divide the annual rate by 12. A 6% annual rate equals 0.5% per month, so $10,000 generates $50 a month. This calculator already shows that figure as the average monthly interest: total interest divided by the number of months in the term. Note that this proportional shortcut only holds for simple interest — with compounding, converting between rates requires exponents, not division.
Where is simple interest actually used in real life?
In the U.S., most auto loans and many short-term personal loans accrue daily simple interest on the outstanding balance, Treasury bills are priced with linear discount math, and some CDs pay interest out instead of reinvesting it. Late-payment interest on invoices is usually simple too. By contrast, savings accounts quoted in APY and retirement investments compound, and mortgages follow an amortization schedule with monthly payments rather than a single lump-sum formula.
Can I enter the term in months instead of years?
The term field works in years but accepts half-years, so just convert: 6 months = 0.5, 18 months = 1.5, 30 months = 2.5. Because simple interest is proportional to time, the conversion is exact: $12,000 at 4% for 0.5 years earns precisely $240, half of a full year. For terms that do not fit half-year steps (say 7 months), apply the formula by hand with t = 7/12.