Skip to content
MasterMath

Simple Interest Calculator

1,000 at 5% simple interest earns 50 a year, every year, so 500 over a decade. Compound interest on the same terms would have earned 628.89. Work out both and see the gap.

Currency and number format for

Final amount

—

Final amount—
Interest earned—
Interest each year—
With compound interest it would be—
What simple interest costs you—

How this was worked out

    The formula

    interest = principal × rate × years

    Where it comes from

    Simple interest is always charged on the original amount and never on the interest already earned. That makes it the easiest interest to calculate and, for a saver, the worst kind to receive: the balance grows in a straight line instead of a curve.

    How to work it out by hand

    1. Turn the annual rate into a decimal by dividing it by 100
    2. Multiply the principal by that rate to get one year's interest
    3. Multiply by the number of years
    4. Add it to the principal for the final amount

    What is worth knowing

    Simple interest is rare on savings and common on short-term consumer loans, payday advances and some car finance — and that is not a coincidence. On money you lend, simple interest works against you; on money you borrow, it works for you. The gap widens with time: over ten years at 5% the difference is about 129 on a thousand, but over thirty years the compound interest is more than double the simple interest: 3,322 against 1,500. The other place it appears is in accrued interest between payment dates on bonds, where the period is short enough that the difference barely matters.

    Frequently asked questions

    When is simple interest actually used?

    Short-term consumer loans, some car finance, payday advances and accrued interest on bonds between coupon dates. Almost never on savings accounts.

    Is simple interest better or worse than compound?

    It depends which side you are on. If you are saving, compound is better. If you are borrowing, simple is cheaper, because your interest never earns interest of its own.

    Does the gap matter over short periods?

    Barely. Over one year they are identical if compounding is annual. It is time that opens the gap, and it opens faster the higher the rate.

    Can I convert one to the other?

    Not directly, but you can compare them for a given term, which is what this calculator does: same principal, same rate, both results side by side.