Simple Interest Calculator
Calculate simple interest on loans or investments. Unlike compound interest, this only earns interest on the principal.
Investment Details
If checked, interest will be added to principal each year (similar to annual compounding)
Interest Summary
Future Value
$0.00
Total growth over 5 years
Total Interest
$0.00
Earnings from interest
Initial Investment
$10,000.00
Principal amount
Balance Growth
Interest by Year
Yearly Breakdown
| Year | Interest Earned | Balance |
|---|
How It Works
Simple interest only calculates interest on your original principal amount—not on the interest you've already earned. Formula: Interest = Principal × Rate × Time.
Example: $1,000 at 5% for 3 years = $1,000 × 0.05 × 3 = $150 interest. Total: $1,150.
You'll find simple interest on short-term loans, some car loans, and certain fixed deposits. It's better for borrowers (you pay less) and worse for investors (you earn less) compared to compound interest.
Simple vs. Compound Interest
Simple interest: Interest only on the principal. Compound interest: Interest on principal + accumulated interest. The difference is small short-term but huge long-term.
Example: $10,000 at 5% for 10 years. Simple interest = $15,000 total. Compound interest = $16,289 total. That's $1,289 more just from compounding. Over 20 years, the gap would be even wider.
Simple interest is better when you're borrowing (you pay less). Compound interest is better when you're saving/investing (you earn more).
Frequently Asked Questions
When is simple interest better than compound interest?
When you're borrowing. Simple interest means you only pay interest on the original amount, not on accumulated interest. So you'll pay less total interest on a loan.
How do banks calculate interest on savings accounts?
Almost always compound interest, not simple. Usually compounded daily or monthly. That's why your savings grow faster than they would with simple interest.
Do credit cards use simple or compound interest?
Compound, calculated daily. That's why credit card debt grows so fast if you only pay the minimum—you're paying interest on interest.
What types of loans use simple interest?
Many auto loans, some personal loans, and U.S. student loans typically use simple interest. But always verify with the lender—practices vary.
Is adding interest to principal the same as compound interest?
Yes, if you add interest to the principal each year, that's annual compound interest. Simple interest never adds interest to the principal—it always calculates on the original amount only.
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