Simple interest calculator
Calculate simple interest using SI = P × R × T / 100. See total interest, final amount, daily rate, and a side-by-side comparison with compound interest.
What is simple interest?
Simple interest is the most straightforward way to calculate interest on a loan or investment. It is computed only on the original principal, regardless of how much time has passed or how much interest has accumulated. This is common for short-term personal loans, student loans in some countries, and interest owed to suppliers.
Use simple interest for short-duration loans, textbook problems, and any situation where interest is explicitly described as non-compounding. For deposits, savings accounts, and most investments, compound interest applies and will grow your money faster.
The simple-interest formula
The simple-interest formula is deceptively clean: interest equals principal times rate times time, divided by 100. P is the principal (the amount borrowed or invested), R is the annual interest rate as a percentage, and T is the time in years.
SI = (P × R × T) / 100Simple vs compound interest
For the same principal, rate, and time, compound interest always produces a larger total than simple interest once you cross one full compounding period. The difference grows dramatically over long horizons — after 30 years at 8%, a compounding deposit is worth roughly 10× what a simple-interest deposit would be.
Simple vs Compound Interest: Side-by-Side Comparison
At 10% annual interest on $100,000, here is how the two methods compare over time.
| Feature | Simple Interest | Compound Interest Earns more |
|---|---|---|
| Formula | SI = P × R × T / 100 | A = P(1 + r/n)nt |
| Interest on interest | No | Yes |
| Growth pattern | Linear | Exponential |
| Interest earned — 5 years | $50,000 | $61,051 |
| Interest earned — 10 years | $100,000 | $159,374 |
| Interest earned — 20 years | $200,000 | $572,750 |
| Predictability | High | Moderate |
| Common use cases | Short-term loans, auto loans | Savings accounts, FDs, investments |
Example assumes annual compounding for compound interest.
Common Uses
- Short-term personal loan costing: Calculate the total interest cost of a 6 or 12-month personal loan to evaluate whether the purpose justifies the expense.
- Fixed deposit quick estimate: For FDs with simple interest payout (non-cumulative), calculate the quarterly or annual interest payout in seconds.
- Chit fund and informal lending: Informal lending agreements in India and other markets often use simple interest — calculate repayment amounts easily.
- Auto loan interest cost: Many vehicle finance products use simple daily interest — project total interest over the loan tenure before committing.
- Educational finance literacy: Teach the concept of interest to students or clients by calculating simple examples before introducing compound interest.
- Business invoice financing: Invoice discounting and trade credit facilities often charge simple interest for the duration of the credit period.
- Microfinance loan analysis: SHG and microfinance loans frequently use simple interest — calculate repayment obligations for financial planning.
FAQ
Simple interest vs compound interest — what is the difference?
Simple interest accrues only on the original principal — it does not earn interest on interest. Compound interest adds the accrued interest back to the principal at each period, so future interest is computed on a growing balance. Over long horizons, compound interest produces substantially larger totals for the same rate.
Where is simple interest used in real life?
Simple interest is most common for short-term personal loans between individuals, supplier credit, some auto loans in certain markets, textbook problems, and interest owed on overdue invoices. Long-term savings, fixed deposits, and most investments use compound interest.
How do I handle months or days in the simple-interest formula?
For time in months, divide months by 12 before plugging into the formula. For days, divide days by 365. This calculator does the conversion automatically when you pick a unit.
Can I rearrange the formula to solve for rate or time?
Yes — if you already know any three of P, R, T, and SI, you can rearrange the formula to solve for the fourth. For example, R = (SI × 100) / (P × T). This calculator computes SI given P, R, and T.
Does the simple interest calculator store my data?
No. All calculations run entirely in your browser. Your financial figures are never sent to a server or stored after you close the page.
When should I use simple interest vs compound interest?
Simple interest applies to short-term loans and some government schemes. Compound interest applies to savings accounts, mutual funds, and long-term FDs. For the same rate, compound interest yields more than simple interest over time.
By the Numbers
- Simple interest is used for most short-term loans under 1 year, including many personal and vehicle loans
- The U.S. national average savings account rate is approximately 0.46% APY — calculated using simple interest principles (FDIC, 2024)
- The concept of interest charges dates to ancient Babylon (~2000 BC), where clay tablets record annual rates of 20–33%
- Simple interest always results in lower total interest paid than compound interest for the same principal, rate, and period