Simple Interest Calculator
Calculate interest on loans, investments, and savings accounts using the simple interest formula.
About Simple Interest
Simple interest is a quick method of calculating the interest charge on a loan or investment. It's based on the principal amount, the interest rate, and the time period involved.
How Simple Interest Works
Simple interest is calculated using the formula:
Interest = Principal × Rate × Time
Where:
- Principal is the initial amount of money
- Rate is the interest rate per year, expressed as a decimal or percentage
- Time is the time period, typically expressed in years
Applications of Simple Interest
- Short-term loans - Many short-term loans use simple interest
- Bonds - Some bonds pay interest based on simple interest calculations
- Fixed deposits - Certain types of fixed deposits use simple interest
- Consumer loans - Some consumer loans like car loans may use simple interest
Simple vs. Compound Interest
Unlike compound interest, which calculates interest on both the principal amount and previously accumulated interest, simple interest only calculates interest on the principal. This means the interest amount remains constant over time with simple interest.
Example
If you deposit $1,000 at a 5% simple interest rate for 3 years:
- Interest = $1,000 × 0.05 × 3 = $150
- Total amount after 3 years = $1,000 + $150 = $1,150
With compound interest, the total would be higher since interest would be earned on interest.