How simple interest works
With simple interest, the interest amount is the same each period, because it is always based on the original sum. Doubling the time doubles the interest, and doubling the rate doubles it too.
That makes it easy to predict: the total grows in a straight line. It is also why it is useful for quick checks on a loan quote or deposit offer.
A worked example
Put 5,000 in an account paying 4% simple interest for 3 years. Each year adds 200, so after three years the interest is 600 and the total is 5,600.
If the same 4% were compounded annually, the balance would reach about 5,624.32 instead. The gap is small over a few years but widens with time and higher rates, which is why the comparison line is shown.
Choosing the right calculator
Use this one when the lender or product states simple interest, or for a rough estimate on a short period. For savings that compound, or for regular contributions, use the compound interest calculator.
For loans repaid in instalments, interest is calculated on a falling balance, so use the loan calculator for an accurate payment.
Limits to keep in mind
This is an estimate for general information. Real products can include fees, tax and different day-count rules, so read the terms before deciding.
Questions people ask
What is the simple interest formula?
Interest = principal × annual rate × time in years. For 5,000 at 4% for 3 years, the interest is 5,000 × 0.04 × 3 = 600, so the total is 5,600.
What is the difference between simple and compound interest?
Simple interest is charged only on the original principal. Compound interest is also charged on interest already added. Over the same 3 years, 5,000 at 4% earns 600 simple but about 624.32 compounded yearly.
How do I calculate it for months or days?
Convert the time to years first: divide months by 12 and days by 365. Six months at 5% on 10,000 is 10,000 × 0.05 × 0.5 = 250.
Where is simple interest used?
Some short-term loans, certain car loans, bonds that pay a fixed coupon, and simple deposit products use simple interest. Most savings accounts and credit cards use compound interest instead.
Do banks use 360 or 365 days?
It varies. Many calculations use 365 days, while some loans and money-market products use 360, which gives slightly more interest. Check your agreement. This calculator uses 365.