What Is Simple Interest?
Simple interest is calculated only on the original principal — never on interest that has already accrued. The formula is linear in time:
Interest = P × r × t
Total Amount = P + Interest = P × (1 + r×t)
Where P is principal, r is the rate per period (as a decimal), and t is the number of periods.
When Simple Interest Appears
| Context | Notes |
|---|---|
| Short-term loans | Some products use simple interest for clarity |
| Education | Easy to teach before compound formulas |
| Some savings bonds | May use simple rules on the principal |
Most mortgages and credit cards use compound or amortizing methods, not pure simple interest over long horizons.
Simple vs Compound: Same Rate
For the same nominal rate and term, compound always yields more interest earned (or owed) than simple — because the balance grows.
Example: $1,000 at 5% for 3 years:
- •Simple: Interest =
1000 × 0.05 × 3 = $150→ Total $1,150 - •Annual compound:
1000 × 1.05³ ≈ $1,157.63
The gap widens with longer time and higher rates.
How to Use This Calculator
Enter principal, annual interest rate, and time. The tool shows interest earned and total amount under simple interest assumptions — ideal for homework, short-term estimates, or comparing to compound results.