Simple Interest Calculator
Calculate simple interest on the principal amount only. Enter the principal, interest rate, and time period to automatically calculate interest and total amount.
Result
- Principal
- $0.00
- Interest Rate
- 0%
- Time Period
- 0 years
- Interest
- $0.00
- Total Amount
- $0.00
Formula & Guide
Formula
I
Interest Calculation
I = P × R × T
Interest = Principal × Rate × Time
A
Total Amount
A = P + I
Amount = Principal + Interest
Formula Variables
P
Principal
The initial amount of money invested or borrowed
R
Rate
Annual interest rate (as a decimal, e.g., 5% = 0.05)
T
Time
Time period in years (convert months/days to years)
I
Interest
Total interest earned or paid over the time period
Step-by-Step Scenario
Example Scenario
Principal
$10,000
Interest Rate
5%
(annual)
Time Period
2 years
1
Convert Interest Rate to Decimal
- Rate (R) = 5% ÷ 100 = 0.05
Always convert percentage to decimal form for calculation
2
Calculate Interest
- I = P × R × T
- I = $10,000 × 0.05 × 2 = $1,000
3
Calculate Total Amount
- A = P + I
- A = $10,000 + $1,000 = $11,000
Additional Examples
Short-term Loan
Principal: $5,000
Rate: 8% per year
Time: 6 months (0.5 years)
Interest
$5,000 × 0.08 × 0.5 = $200
Total Amount
$5,000 + $200 = $5,200
Long-term Investment
Principal: $20,000
Rate: 3.5% per year
Time: 5 years
Interest
$20,000 × 0.035 × 5 = $3,500
Total Amount
$20,000 + $3,500 = $23,500
Characteristics of Simple Interest
Linear Growth
Interest grows linearly over time. Each period earns the same amount of interest based on the original principal.
Simple Calculation
Easy to calculate and understand. No complex formulas or compounding periods to consider.
Predictable Returns
Returns are predictable and fixed. You can easily calculate future value without uncertainty.
Common Applications
Frequently used for short-term loans, car loans, personal loans, and some savings accounts.
Important Notes
- Simple interest is calculated only on the principal amount. Previously earned interest does not earn additional interest.
- Time periods must be converted to years. For months, divide by 12. For days, divide by 365 (or 366 for leap years).
- Interest rates are typically expressed as annual rates. Make sure to convert percentages to decimals (divide by 100) before calculation.
- Simple interest generates less return compared to compound interest over the same period, especially for longer time frames.
Frequently Asked Questions
Find answers to common questions about the simple interest calculator.