Simple Interest Calculator

The Simple Interest Formula, Explained

Simple interest grows at a flat, constant rate on the original amount you deposit or borrow, calculated as principal multiplied by the annual rate multiplied by the number of years. Unlike compound interest, previously earned interest never gets added back into the base for future calculations, so the growth is linear rather than accelerating over time. This makes simple interest easier to predict and is one reason it's still used for certain short-term loans, car loans, and some fixed-deposit products.

When Simple Interest Works in Your Favor (and When It Doesn't)

If you're borrowing money, simple interest is generally better for you than compound interest, since you're only ever charged on the original amount, not on interest that has already accrued. If you're saving or investing, the opposite is true: compound interest almost always outperforms simple interest over multi-year periods, because your returns start earning their own returns. A useful rule of thumb: for loans, look for simple interest; for long-term savings and investments, look for compound interest.

A Quick Worked Example

Suppose you deposit 50,000 at an annual simple interest rate of 6% for 3 years. Each year earns 6% of the original 50,000, which is 3,000 — and that amount stays flat every year since it's calculated only on the original principal. After 3 years, total interest earned is 9,000, for a final balance of 59,000. Change any of those three inputs above and the calculator instantly recalculates the same way.

What is Simple Interest?

Simple interest is calculated only on the original principal amount, unlike compound interest which also earns interest on previously accumulated interest. It is commonly used for short-term loans, car loans, and some fixed-deposit products. The formula is: Simple Interest = (Principal × Rate × Time) / 100.

How is simple interest different from compound interest?

Simple interest grows at a constant rate every year because it's always calculated on the original principal. Compound interest grows faster over time because each year's interest is added back to the principal before the next calculation. For long-term investments, compound interest produces significantly higher returns. Try our Compound Interest Calculator to compare.

Where is simple interest commonly used?

Simple interest is typically used for auto loans, personal loans with short tenures, and certain bonds or promissory notes. Most bank savings accounts and mutual fund investments instead use compound interest.