How the Simple Interest Calculator works
Simple interest is the most basic way to price the cost of borrowing or the return on a deposit: interest is earned only on the original principal, and the same dollar amount accrues every period. This calculator applies the standard simple interest formula to your principal, annual rate, and time period to produce the interest earned, the total amount, and two derived figures.
The formula
Simple interest is defined as:
I = P × r × t
where P is the principal (the amount borrowed, deposited, or invested), r is the annual interest rate expressed as a decimal (5% = 0.05), and t is the time period in years. The total amount at the end of the term is A = P + I = P × (1 + r × t).
Worked example
Take a $10,000 principal at 5% annual simple interest for 3 years. The interest earned is 10,000 × 0.05 × 3 = $1,500. The total amount after 3 years is 10,000 + 1,500 = $11,500, a total return of 15%. Spread evenly over the term, that works out to roughly $1.37 of interest per day.
Simple interest vs. compound interest
With simple interest, each period's interest is calculated only on the original principal, so the dollar amount earned is identical every year — 5% of $10,000 is $500 in year one, year two, and year three, for a total of $1,500. Compound interest instead calculates interest on the principal plus all previously earned interest, so the dollar amount grows every period and the total ends up larger at the same stated rate. Simple interest is common on short-term promissory notes, some certificates of deposit, and Treasury bills quoted on a discount basis; most savings accounts, credit cards, and long-term investment products compound instead.
Converting time periods
This calculator accepts the time period in years, months, or days. Months are converted to years by dividing by 12, and days are converted by dividing by 365 (a standard approximation that ignores leap years), so the calculation always runs on an equivalent number of years regardless of which unit you enter.