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Simple Interest Calculator

Work out the interest on a sum of money when interest is charged only on the original amount.

How it works

Simple interest uses the formula I = P × r × t, where P is the principal, r is the yearly rate as a decimal and t is the time in years. The total amount at the end is A = P + I. For a period in months, divide the months by 12, so 18 months is 1.5 years.

Worked example

$5,000 at 5% a year for 3 years earns 5,000 × 0.05 × 3 = $750 of interest. The total amount is $5,750, which is $250 a year or about $20.83 a month.

Simple vs compound interest

With simple interest, the interest each year stays the same. With compound interest, interest is added to the balance and also earns interest. Over 3 years at 5%, $5,000 earns $750 simple interest but about $788 compounded yearly. The gap grows quickly over longer periods. Try the compound interest calculator to compare.

Where simple interest is used

• Many car loans and some personal loans charge simple interest on the remaining balance.
• Certificates of deposit and bonds that pay interest out rather than reinvesting it.
• Short-term business loans and informal loans between friends or family.

Frequently asked questions

What is the simple interest formula?

I = P × r × t: principal times yearly rate (as a decimal) times time in years.

How do I calculate simple interest for months?

Divide the number of months by 12 and use that as the time in years. Six months is 0.5 years.

How do I find the rate from the interest?

Rearrange the formula: r = I ÷ (P × t). For $750 interest on $5,000 over 3 years, r = 0.05, or 5%.

Is simple interest better for borrowers?

Usually, yes. Simple interest costs less than compound interest at the same rate and term.

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