Free Financial Tool
Simple Interest Calculator
Calculate interest using I = P × R × T. Compare simple vs. compound interest side by side to see what you're missing.
Enter your values
= 3.00 years
Live Formula
I = $10,000 × 5% × 3 years = $1,500
Interest Earned
$1,500
Total Amount
$11,500
Daily Rate
0.0137%
Principal
$10,000
Return
15.00%
Simple vs. Compound Interest
Same principal, rate, and time — side by side.
Simple Interest
—
Interest: —
Interest on principal only. Linear growth.
Compound Interest (Annual)
—
Interest: —
Interest on balance. Exponential growth.
Year-by-year breakdown
| Period | Interest This Period | Running Total |
|---|
How Simple Interest Works
Simple interest is the most straightforward way to calculate interest: you earn (or pay) a fixed amount of interest based only on the original principal — never on previously accumulated interest.
Total = P + I
Where P = Principal, R = Annual rate (decimal), T = Time in years.
Worked Example
If you deposit $10,000 at 5% annual simple interest for 3 years:
- I = $10,000 × 0.05 × 3 = $1,500
- Total = $10,000 + $1,500 = $11,500
- With annual compound interest, you'd have: $10,000 × (1.05)³ = $11,576.25
- Compound interest earns $76.25 more over just 3 years
Over longer periods, the gap widens dramatically. At 30 years, compound interest at 5% would give $43,219 vs. $25,000 with simple interest — a $18,219 difference.
Frequently Asked Questions
What is simple interest?▾
Simple interest is calculated only on the original principal, not on accumulated interest. Formula: I = P × R × T. For example, $10,000 at 5% for 3 years = $1,500 in interest.
How is simple interest different from compound interest?▾
Simple interest is linear — it grows by the same fixed dollar amount each period. Compound interest is exponential — it grows on the balance including previously earned interest, accelerating over time.
When is simple interest used in real life?▾
Simple interest is used for short-term personal loans, auto loans, some mortgages (especially the first few years), Treasury bills, and certain savings bonds. Most banks and credit cards use compound interest.
What is the formula for simple interest?▾
I = P × R × T, where P is the principal amount, R is the annual interest rate (as a decimal), and T is the time in years. Total amount = P + I.
Is simple interest better or worse than compound interest for savers?▾
For savers, compound interest is better — your interest earns more interest. For borrowers, simple interest is better because you only pay interest on the original amount. Always use compound interest accounts (like HYSAs) for savings.
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Example Scenarios — See the Real Numbers