Simple interest formula
Simple interest is calculated only on the original principal. It's common for some short-term loans or basic savings products, but does not build on accumulated interest the way compound interest does.
I = P × r × t
I = interest earned
P = principal
r = annual rate (decimal)
t = time in years
Worked example
For an $8,000 principal at a 5% simple annual rate over 3 years:
| Item | Amount |
|---|
| Principal | $8,000 |
| Interest (8,000 × 0.05 × 3) | $1,200 |
| Final value | $9,200 |
Principal vs. interest earned
How your final value splits between the money you put in and the interest it earns. Updates as you change the inputs.
How it works
Simple interest applies only to the original principal. That means interest does not compound on itself, which makes it easier to estimate than a compound-growth model.
I = P × r × t
I = interest
P = principal
r = rate
t = time
Frequently asked questions
How is simple interest different from compound interest?
Simple interest is charged only on the original principal, while compound interest grows on both the principal and prior interest.
Where is simple interest commonly used?
It appears in short-term loans, some bonds, and educational or consumer financing examples.
Does this calculator show total payoff?
Yes. It can show the total interest and final value or payment amount based on the entered period.
Is it good for long-term planning?
It is useful for short-term estimates, but long-term growth is usually better modeled with compound-interest assumptions.
What does a higher rate change?
It increases the interest amount linearly, which can affect short-term borrowing costs and returns.