Simple Interest Calculator
Interest on the principal alone — the same amount every year — with the compound equivalent beside it so the difference is visible rather than assumed.
The address carries whatever you changed, so anyone opening it sees these numbers. Nothing is saved on our side.
Interest earned
$5,000
$10,000 at 5% for 10 years — a flat $500 every year, because interest is never earned on interest. Compounding the same rate would have added $1,289 more.
- $10,000
- $500
- the same every year
- $5,000
- $15,000
- $16,289
- annually
- $1,289
Where the two diverge
Simple interest is a straight line; compound interest is a curve. Over a year or two they are close. Over decades they are not the same product.
| Held for | Simple interest | Compound interest | vs yours |
|---|---|---|---|
| 1 yearThe same either way | $500 | −$5,789 less in total | |
| 3 yearsCompounding adds $76 | $1,500 | −$4,713 less in total | |
| 5 yearsCompounding adds $263 | $2,500 | −$3,526 less in total | |
| 10 yearsyoursCompounding adds $1,289 | $5,000 | — | |
| 20 yearsCompounding adds $6,533 | $10,000 | +$10,244 more in total | |
| 30 yearsCompounding adds $18,219 | $15,000 | +$26,930 more in total |
Notice the first row. Over a single year with annual compounding the two are identical, because nothing has been credited yet for interest to be earned on. Everything compounding is worth comes from the periods after the first, which is why time matters more here than the rate does.
Where you will actually meet simple interest
It is rarer than the textbooks suggest, and commoner than people expect in exactly the places it costs them.
Short-term instruments
Treasury bills, some notes and many money-market instruments quote simple interest over a term of months. Over that length the gap against compounding is small, which is why the convention persists.
Car and personal loans
Most US auto loans are simple-interest loans: interest accrues daily on the outstanding principal and is not compounded onto it. That is genuinely in your favour, and it is why paying early on a car loan works.
Money between people
Loans between family, businesses and private parties are usually written as simple interest, because it is the arithmetic both sides can check. Worth stating in writing which one you agreed.
How this calculator works
One formula, plus the comparison that gives it meaning.
Simple interest is I = P × r × t — principal times the annual rate times the number of years. Nothing accumulates. The interest earned in year twenty is identical to the interest earned in year one, because the balance interest is calculated on never changes.
The compound figure alongside it uses the same nominal rate at the frequency you choose: A = P (1 + r/n)^(n·t). Both come from the same principal and rate, so the difference between them is the value of compounding and nothing else.
Time is entered in years and may be fractional. For a term in months or days, express it as a fraction — six months is 0.5, ninety days is roughly 0.247.
What is assumed
- The rate does not change over the term.
- Nothing is added to or withdrawn from the principal.
- A year is a year — no 360-day commercial convention.
- No tax, no fees, no inflation adjustment.
A worked example
$10,000 at 5% for ten years, against the same money compounding annually.
| Interest each year | $10,000 × 5% |
|---|---|
| Over ten years | $500 × 10 |
| Final balance, simple | 10,000 + 5,000 |
| Compounded annually | $10,000 × 1.05¹⁰ |
| Compound interest | 16,288.95 − 10,000 |
| What compounding was worth | 6,288.95 − 5,000 |
$1,288.95 over a decade, or about a quarter more interest, on the same principal at the same rate. Every dollar of it comes from years two onwards — in year one the two are identical, because there is nothing yet for interest to be earned on.
Extend the term to thirty years and simple interest earns $15,000 while annual compounding earns $33,219 — more than double. That divergence is why the distinction matters, and it is entirely a function of time rather than of the rate.
Questions people ask
I = P × r × t, where P is the principal, r is the annual rate as a decimal and t is the time in years. $10,000 at 5% for 10 years earns 10,000 × 0.05 × 10 = $5,000. Interest is calculated on the original principal every single year and never on interest already earned, which is the entire difference from compounding.
Simple interest is a straight line and compound interest is a curve. Under simple interest each year earns exactly the same amount; under compounding each year earns slightly more, because the previous years' interest has joined the balance. Over one year at annual compounding they are identical — nothing has been credited yet for interest to be earned on. Over decades the gap becomes enormous.
More often than people expect. Most US auto loans are simple-interest loans: interest accrues daily on the outstanding principal and is not compounded onto it, which is why paying early on a car loan works so well. Treasury bills and many short-term notes quote simple interest, and loans written between private parties or family almost always use it because it is the arithmetic both sides can check.
It depends entirely on which side of the money you are on. If you are borrowing, simple interest is better — the debt cannot snowball. If you are saving or investing, compound interest is better, and by a very large margin over long periods. The same mechanism that makes borrowing safer makes saving slower.
Express the time as a fraction of a year and the formula is unchanged. Six months is t = 0.5, ninety days is t = 90/365. Note that lenders differ on whether a year is 360 or 365 days — the 360-day convention is common in commercial lending and makes the daily rate slightly higher. This calculator uses years directly, so enter 0.5 rather than 6.
Neither. Interest is generally taxable as ordinary income in the year it is earned, and inflation erodes what the money buys regardless of the rate. Both reduce the real return and neither is modelled here — this page does one piece of arithmetic and says so.
Related calculators
Arithmetic only. It does not account for tax on interest, inflation, fees, or day-count conventions that vary between lenders.