Simple Interest Calculator
Calculate simple interest for loans, savings accounts, and basic financial calculations. Simple interest is calculated only on the principal amount without compounding.
Calculation Results
Simple vs Compound
Interest Insights
Daily Rate: 0.00%
Monthly Rate: 0.00%
Annual Cost: $0
Note: Simple interest doesn't compound
Understanding Simple Interest
Simple interest is the most basic way to calculate interest on a loan or investment. Unlike compound interest, simple interest is calculated only on the principal amount and doesn't earn "interest on interest."
Simple Interest Formula
Simple interest is calculated using:
I = P × r × t
Where: I = interest, P = principal, r = annual rate, t = time in years
When to Use Simple Interest
- Short-term Loans: Personal loans, payday loans
- Some Savings Accounts: Basic savings without compounding
- Treasury Bills: Short-term government securities
- Certificates of Deposit: Some CDs with simple interest
- Installment Loans: Auto loans, furniture loans
Simple vs. Compound Interest
| Aspect | Simple Interest | Compound Interest |
|---|---|---|
| Calculation | Interest on principal only | Interest on principal + interest |
| Growth Pattern | Linear growth | Exponential growth |
| Common Use | Short-term, simple loans | Savings, investments, mortgages |
| Advantage | Easy to calculate | Higher returns over time |
Real-World Examples
Personal Loan
$10,000 loan at 8% for 2 years:
- Interest = $10,000 × 0.08 × 2 = $1,600
- Total repayment = $11,600
- Monthly payment ˜ $483.33
Savings Account
$5,000 savings at 2% for 1 year:
- Interest earned = $5,000 × 0.02 × 1 = $100
- Final balance = $5,100
- Effective yield = 2%
Solving for Different Variables
The simple interest formula can be rearranged to solve for different variables:
- Principal (P): P = I ÷ (r × t)
- Rate (r): r = I ÷ (P × t)
- Time (t): t = I ÷ (P × r)
- Interest (I): I = P × r × t
Applications in Finance
- Loan Calculations: Determine total interest and payments
- Savings Projections: Estimate interest earnings
- Investment Analysis: Basic return calculations
- Cost of Borrowing: Compare loan options
- Time Value Analysis: Basic present/future value concepts
Tip: Simple interest is straightforward and predictable, making it easy to calculate total costs or earnings. However, for longer time periods or investments, compound interest typically provides better returns due to the "interest on interest" effect.