Simple Interest Calculator
Calculate simple interest on your principal amount. Simple interest is calculated only on the principal amount, not on accumulated interest.
Calculate Simple Interest
Simple Interest Results
$12,500.00
Principal + Interest
$10,000.00
$2,500.00
Calculated as: Principal × Rate × Time
Simple Interest Growth Over Time
- Interest Earned
- Principal
- Total Amount
Simple interest is a straightforward method of calculating interest on a principal amount. Unlike compound interest, simple interest is calculated only on the original principal amount throughout the entire time period. This makes it easier to calculate and understand, making it ideal for short-term loans, savings accounts with simple interest, and basic financial planning.
Simple interest is commonly used in:
- Short-term personal loans
- Some savings accounts and certificates of deposit (CDs)
- Auto loans (though many use compound interest)
- Basic financial calculations and educational purposes
- Simple investment scenarios where interest doesn't compound
Simple Interest Formula
I = P × r × t
A = P + I = P(1 + rt)
- I = Simple Interest
- P = Principal Amount (initial investment or loan amount)
- r = Annual Interest Rate (as a decimal, e.g., 5% = 0.05)
- t = Time Period (in years)
- A = Total Amount (Principal + Interest)
The formula multiplies the principal by the interest rate and time period. Since interest doesn't compound, the calculation remains linear and straightforward.
Simple Interest vs. Compound Interest
Understanding the difference between simple and compound interest is crucial for financial planning:
- •Simple Interest: Interest is calculated only on the principal amount. The interest earned each period is the same, making it linear and predictable.
- •Compound Interest: Interest is calculated on both the principal and previously earned interest. This creates exponential growth over time, resulting in higher returns for investments but higher costs for loans.
- •Key Difference: Over long periods, compound interest significantly outperforms simple interest. For example, $10,000 at 5% for 10 years: Simple Interest = $15,000, Compound Interest = $16,288.95 (compounded annually).
Example Calculation
Let's calculate simple interest on $10,000 at an annual rate of 5% for 5 years:
Given: P = $10,000, r = 5% = 0.05, t = 5 years
Simple Interest: I = $10,000 × 0.05 × 5 = $2,500
Total Amount: A = $10,000 + $2,500 = $12,500
After 5 years, you would have $12,500 total, with $2,500 in interest earned.
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