Enter a principal, rate, and number of years to find the simple interest and total value.
How simple interest works
Simple interest is charged only on the original principal and never on the interest that accumulates. Because of that, it grows in a straight line: the same amount is added every period. You see it in many short-term loans, car financing, and certain fixed deposits.
The contrast with compound interest is the whole point. Over a single year the two are nearly identical, but over many years compound interest pulls far ahead because it keeps reinvesting what it earns. For borrowing, simple interest is friendlier; for saving, compounding is what you want.
The formula
Worked example
1,000 at 5% for 3 years earns 150 in interest, for a total of 1,150.
How to read your result
Simple interest is charged only on the original principal, never on accumulated interest. It is common in short-term loans and some bonds, and it always grows in a straight line rather than a curve.
Frequently asked questions
- When is simple interest used?
- Often in short-term loans, car loans, and some fixed deposits.
- Why is it less than compound interest?
- Because it never pays interest on previously earned interest.
- Is the growth linear?
- Yes, the same amount is added each year.
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