How to use this calculator
- Principal. Enter the original amount borrowed, lent or deposited.
- Yearly rate. Enter the interest rate as a percent per year.
- Years. Enter the length of time. You can use part years, such as 1.5 for eighteen months.
The calculator returns four figures:
- Total interest: all the interest over the full term.
- Final amount: the principal plus the total interest.
- Interest per year: the same dollar amount every year.
- Interest per month: the yearly interest divided by 12.
The same math works whether you are paying the interest or earning it. Only the direction of the money changes. Words such as principal are defined in the glossary.
Worked example
These are the starting values in the calculator above and the results they give. Change any input to see your own numbers.
- Principal
- $10,000
- Yearly rate
- 5%
- Years
- 3 years
- Total interest
- $1,500.00
- Final amount
- $11,500
- Interest per year
- $500.00
- Interest per month
- $41.67
How simple interest is calculated
Simple interest is the most basic kind of interest. You multiply the principal by the yearly rate, then by the number of years. Interest is never added back to the principal, so it does not earn interest of its own.
Take a principal of $2,000 at 4% a year for 5 years. One year of interest is $2,000 × 0.04 = $80. Five years of interest is $80 × 5 = $400. The final amount is $2,000 + $400 = $2,400.
Because the yearly interest never changes, the balance grows in a straight line. Double the time and you double the interest. Double the rate and you double the interest. That makes simple interest easy to check by hand.
I = P × r × t, and A = P + I- I
- total interest
- P
- principal, the original amount
- r
- yearly interest rate as a decimal
- t
- time in years
- A
- final amount
When simple interest applies
Simple interest shows up in short-term loans, some personal and vehicle loans, loans between friends or family, and some bonds that pay out interest instead of adding it to the balance. It is also a handy way to estimate interest over a short period.
Many savings products and most long-term debts use compound interest instead. With compounding, interest is added to the balance and then earns or costs interest itself. Over one year the gap between the two methods is small. Over many years it becomes large.
To see the difference for your own numbers, enter the same amount, rate and term into the compound interest calculator and compare the final amounts. If you are pricing a loan with regular payments, the loan calculator is a better fit, because each payment lowers the balance that interest is charged on.
Frequently asked questions
What is the formula for simple interest?
Simple interest equals principal times rate times time. Write the rate as a decimal, so 5% becomes 0.05, and measure time in years. To get the final amount, add the interest to the principal. For example, $1,000 at 5% for 3 years gives $1,000 × 0.05 × 3 = $150 of interest and a final amount of $1,150.
How do I calculate simple interest for months instead of years?
Convert the months to years by dividing by 12, then use the normal formula. Six months is 0.5 years and eighteen months is 1.5 years. You can also take the interest for one year and divide it by 12 to get the interest for one month, then multiply by the number of months.
Is simple interest better than compound interest?
It depends on which side you are on. If you are borrowing, simple interest costs less than compound interest at the same rate and term, because interest is not charged on interest. If you are saving or investing, compound interest earns more for the same reason. The longer the term, the bigger the difference between the two.
Do loans use simple interest?
Some do. Many installment loans charge interest only on the balance still owed and do not add unpaid interest to the principal. That is a form of simple interest, but because payments shrink the balance over time, the total cost is lower than principal times rate times time. A loan or amortization calculator handles that case.
What does principal mean?
Principal is the original sum of money before any interest. For a loan, it is the amount borrowed. For a deposit or investment, it is the amount put in. Interest is worked out as a percentage of the principal. With simple interest the principal stays the same for the whole term, which is why the interest is the same each year.
This calculator gives estimates for education only. It does not know your full situation and is not financial advice. Reviewed and updated November 15, 2026.