What this calculates
Enter a principal, an annual rate and a term, and this shows the interest, the total and what each year adds. Interest is worked out on the opening amount alone, so every full year earns exactly the same figure and the balance climbs in a straight line.
That straight line is the whole distinction. Compound interest pays on a balance that keeps growing; simple interest pays on the amount you started with, from the first year to the last.
The formula
P is the principal, r the annual rate as a percent and t the term in years, which
may be a fraction.
The interest
I = P × (r ÷ 100) × tThe total
A = P + IBecause the rate only ever meets the original principal, one year's interest is a fixed amount that the term simply multiplies.
One year of it
Interest per year = P × (r ÷ 100)Every part of it is linear. Double the principal and the interest doubles; double the rate and it doubles; double the term and it doubles again. Nothing here feeds back into itself, which is exactly what compounding does and this does not.
Worked example
The two 8,000 figures are the point. In the tenth year the money has been earning for a decade, and it still pays the same as it did in the first, because the rate has never been applied to anything but the opening 100,000.
Put the same money into an account that compounds once a year at the same 8%, and the tenth year alone earns 15,992.04 rather than 8,000. The totals end up at 180,000 against 215,892.50 — a gap of 35,892.50 created by nothing except interest being allowed to earn interest. Over twenty years the same comparison is 260,000 against 466,095.71.
A term does not have to be whole. At the same rate over 2.5 years the interest is 20,000 and the total 120,000, made up of 8,000 in the first year, 8,000 in the second and 4,000 in the half year that follows — exactly half a year's worth, because half the time earns half the interest.
When to use it, and the mistakes to avoid
Use it when a figure is quoted as simple interest, when checking what a short-term arrangement costs or earns, when you need the total repayable rather than a schedule of instalments, and when you want a floor to compare a compounding option against.
The mistakes that cost the most:
- Entering a monthly rate as the annual one. A rate quoted as 1% a month is 12% a year here, because simple interest just adds the twelve of them up. Type 1 into the annual rate and a one-year answer on 100,000 comes out at 1,000 instead of 12,000 — a twelfth of the truth. Multiply a monthly rate by 12 before entering it, and check which one you were quoted.
- Entering months as years. Six months is 0.5, not 6. That single slip turns 4,000 of interest into 48,000 on 100,000 at 8%. Three months is 0.25, eighteen months is 1.5, and days divide by 365.
- Expecting it to grow like compound interest. It does not accelerate, ever. The tenth year pays the same as the first, and over ten years at 8% that leaves 35,892.50 on the table against annual compounding. If a product describes growth that speeds up, this is the wrong calculator for it.
- Comparing a simple rate with a compound one at face value. The same percentage means less here. Compare the totals, not the rates.
- Rounding a part year to a whole one. A quarter of a year earns a quarter of the interest: 1,000 at 5% for 0.25 years is 12.50, not 50 and not 13. Short terms are where the minor unit matters most, which is why the figures here are shown to it.
- Reading the total as what you keep. No tax and no inflation are applied, so it is the gross arithmetic and nothing more.
FAQ
How do I calculate simple interest?
Multiply the principal by the rate as a decimal, then by the number of years: I = P × (r ÷ 100) × t. On 100,000 at 8% for ten years that is 100,000 × 0.08 × 10 = 80,000 of interest, and adding the principal back gives a total of 180,000. The rate is applied to the original amount every year, so the interest never changes from one year to the next.
What is the difference between simple and compound interest?
Simple interest is always charged on the original principal; compound interest is charged on the balance, which includes the interest already added. Over ten years 100,000 at 8% comes to 180,000 with simple interest and 215,892.50 compounded once a year — a gap of 35,892.50 on the same rate, the same money and the same term. The gap widens with the term: over twenty years it is 260,000 against 466,095.71.
How do I work out simple interest for months or days?
Convert the term into years and enter that: six months is 0.5, three months is 0.25, eighteen months is 1.5. Days are the same idea — divide by 365. Entering 6 instead of 0.5 for six months gives 48,000 rather than 4,000 on 100,000 at 8%, which is twelve times the right answer, so it is worth checking the units before the figures.
How much simple interest will 100,000 earn?
At 8% it earns 8,000 every year, whatever the term. Over one year that is a total of 108,000, over five years 140,000, over ten years 180,000 and over twenty years 260,000. Because the interest is linear, doubling the term doubles the interest exactly — which is not true of compound interest.
How do I find the rate, the principal or the term from the interest?
Rearrange the same formula. The rate is r = (I × 100) ÷ (P × t), the principal is P = (I × 100) ÷ (r × t), and the term is t = (I × 100) ÷ (P × r). You can also work backwards in the calculator itself by changing one field until the interest matches the figure you already have.
Does this include tax or inflation?
No. It shows the interest and the total before either. Both depend on where you are and on your own circumstances, so neither is applied here — treat the result as the gross figure the arithmetic gives, not as what the money will be worth or what you will keep.