Simple interest calculator

The formula

$$I = P\,r\,t$$

$I$ is the interest, $P$ the principal (the amount borrowed or deposited), $r$ the annual rate as a decimal and $t$ the time in years. The amount owed or held at the end is $A = P + I = P(1 + rt)$.

Where it comes from

Simple interest is charged only on the original principal, never on interest already earned. A rate of $r$ per year means each year adds the same amount, $P \cdot r$. After $t$ years that fixed amount has been added $t$ times:

$$I = \underbrace{P r + P r + \cdots + P r}_{t \text{ years}} = P\,r\,t$$

That’s why the balance grows in a straight line. Compound interest adds interest on interest, so its balance curves upward. For the same rate, compound interest always pulls ahead after the first period.

Worked example

$5,000 at 4% a year for 3 years:

$$I = 5000 \times 0.04 \times 3 = 600$$

You’d have $5,600 at the end. Compounded yearly instead, the same deposit would reach $5000 \times 1.04^3 = 5624.32$.

Where it’s used

Simple interest is used for short-term loans, some auto loans, Treasury bills and certificates of deposit that pay out interest instead of reinvesting it. It’s also used in quick estimates, since over a short time the difference from compounding is small.

Watch out for

• Months, not years. For 18 months, use $t = 1.5$.
• Rate as a percent. This calculator takes 4 for 4%. In the formula, $r = 0.04$.

Sources

• OpenStax, Contemporary Mathematics, section 6.5 "Simple Interest"

Last checked November 11, 2026