Simple Interest Calculator
Calculate simple interest on a loan or deposit and see how it stacks up against compound interest over the same period. Drag the sliders and the numbers update instantly.
How simple interest works
Simple interest is calculated only on the original principal, never on previously earned interest. The formula is I = P × r × t, where P is the principal, r is the annual rate as a decimal, and t is the time in years. Because the interest base never changes, simple interest grows in a straight line rather than a curve.
Where you'll see simple interest
Many car loans, some personal loans, and most short-term bonds use simple interest. Auto loans in particular calculate interest on the outstanding balance each day, so paying a little extra toward principal directly reduces the interest you owe. Treasury bills and many bridge loans are also quoted on a simple-interest basis.
Tip: When you borrow, simple interest is usually in your favor; when you save, compound interest is. Always check which method a product uses before signing.
Simple vs compound interest
The difference is who earns interest on the interest. With simple interest a $10,000 deposit at 5% earns exactly $500 every year. With annual compounding, year two earns 5% on $10,500, year three on more still — so the gap widens every year.