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Simple Interest Calculator

The formula behind short-term loans and basic savings bonds — interest that never compounds.

Principal

Annual interest rate

Time period (years)

Total after 5 years

$13,000

$3,000 in interest

Principal: $10,000
Interest earned: $3,000

What you entered

Principal: $10,000Annual rate: 6%Years: 5

1
Apply the simple interest formula
I = P × r × t = $10,000.00 × 0.0600 × 5= $3,000.00
2
Add interest to principal
$10,000.00 + $3,000.00= $13,000.00

Result

Total after 5 years: $13,000

Unlike compound interest, simple interest is only ever calculated on the original $10,000 — it earns $3,000 flat over 5 years, regardless of how often it's paid out.

Simple interest on $10,000 at common rates

Simple interest is charged on the original principal only, never on interest already accrued, so it grows in a straight line: I = P x r x t. Each row is $10,000 at the rate shown.

Annual rate	Interest after 1 year	After 3 years	After 5 years	Total after 5 years
2%	$200	$600	$1,000	$11,000
3%	$300	$900	$1,500	$11,500
4%	$400	$1,200	$2,000	$12,000
5%	$500	$1,500	$2,500	$12,500
6%	$600	$1,800	$3,000	$13,000
8%	$800	$2,400	$4,000	$14,000
10%	$1,000	$3,000	$5,000	$15,000
12%	$1,200	$3,600	$6,000	$16,000

The 3-year column is exactly three times the 1-year column, and that straight line is the whole difference from compound interest. At 8% over 5 years simple interest pays $4,000 while monthly compounding on the same money pays $4,898. Simple interest is what you will meet on many car loans, short-term personal loans, bonds paying a fixed coupon and some fixed deposits. Anything describing itself as an annual percentage yield is compounding instead.

Where simple interest still shows up

Many short-term loans, car loans, and some bonds use simple interest rather than compound interest, since it's easier to calculate and predict over a fixed short term.

The formula

I = P × r × t — principal times the annual rate (as a decimal) times the number of years. Unlike compound interest, the interest earned each year is always the same dollar amount.

Simple vs compound interest — the real difference

Simple interest charges the same amount each period: $10,000 at 5% earns $500 every year regardless. Compound interest charges interest on accumulated interest: year 1 earns $500, year 2 earns $525, year 3 earns $551.25. After 10 years, simple gives $5,000; compound gives $6,289. After 30 years the gap widens enormously: $15,000 vs $33,219.

When borrowers prefer simple interest

Simple interest auto loans charge interest only on the remaining principal, so each payment reduces the balance — making the next interest charge smaller. Paying early or making extra payments directly reduces total interest. This contrasts with precomputed interest loans where the full interest is baked in from day one regardless of early payoff.

Frequently asked questions

What is the simple interest formula?

I = P × r × t. I = interest earned, P = principal amount, r = annual interest rate as a decimal (5% = 0.05), t = time in years. Example: $8,000 at 6% for 3 years → I = 8,000 × 0.06 × 3 = $1,440. Total repayment = $8,000 + $1,440 = $9,440.

What is the difference between simple and compound interest?

Simple interest is calculated only on the original principal — it never changes year to year. Compound interest is calculated on the principal plus all previously earned interest, so it grows exponentially. For short periods the difference is small; over decades it becomes enormous.

Which loans use simple interest?

Most auto loans, some personal loans, and US Treasury bonds use simple interest. Mortgages, credit cards, and savings accounts typically use compound interest. Student loans use simple interest while you're in school (for subsidized loans), then switch to compound behavior if interest capitalizes.