Simple Interest Calculator

Enter the amount borrowed or deposited, the annual interest rate, and the term in years. The calculator returns the interest that accrues and the combined total, updating as you type. Simple interest never charges interest on interest, so the result depends only on those three numbers — not on how often anything is credited or billed. Read the interest line as the cost of borrowing, or the reward for lending, and the total as what changes hands when the term ends.

How the calculation works

The formula is the one from every introductory finance course, and the one lawmakers reach for whenever a statute needs interest that cannot compound:

I = P × r × t ÷ 100

where P is the principal, r is the annual rate as a percentage, and t is the time in years. The total is P + I. Writing the rate as a decimal instead — 0.045 rather than 4.5 — lets you drop the ÷ 100 and use I = P × r × t; the two are the same calculation.

With the defaults — 5,000 at 4.5% for 3 years — the interest is 5,000 × 4.5 × 3 ÷ 100 = 675, making the total 5,675. Each year contributes the same 225, because the charge is always computed on the original principal and never on interest already accrued. That is what makes simple interest linear: plot the balance over time and it climbs in a straight line rather than a curve.

Time does not need to be whole years. Divide months by 12 — 18 months is 1.5, nine months is 0.75 — and divide days by the lender's day-count basis. Most consumer contracts use 365, so a 90-day term is 90 ÷ 365 ≈ 0.2466. Many money-market and commercial loans instead use a 360-day year, the actual/360 convention, which quietly makes each day of interest slightly dearer because the same annual rate is spread across fewer days.

A short history of interest

Interest is one of the oldest financial ideas on record. Clay tablets from Sumer, some going back to around 3000 BC, already show credit used systematically for loans of both grain and metal, and the earliest written evidence of interest charged on interest dates to roughly 2400 BC. Rates were high by modern standards, with an annual charge near 20 percent common. The traditional explanation ties the idea to loans of livestock and seed, which literally reproduce, so that a borrower handing back more than was lent was returning a natural increase; other historians argue the imagery came instead from the fractional units of Mesopotamian accounting. Either way, the vocabulary preserves the metaphor. The Sumerian word for interest, máš, was also a word for a young goat, and the Greek tókos meant both interest and offspring — the metaphor Aristotle attacked when he called money bred from money the most unnatural kind of gain.

Legal ceilings followed early. The Laws of Eshnunna, from a city-state north-east of Babylon and usually dated to around 1930 BC, already fixed a legal rate of interest, so capping lenders is older than the famous example. That famous example is the Code of Hammurabi, composed around 1753 BC near the end of the Babylonian king's reign of roughly 1792 to 1750 BC. Among its fixed prices and rules it set a ceiling of about 20 percent, commonly reported as 20 percent on loans of silver and a third on loans of grain, and lenders who demanded more risked losing their claim. Hammurabi's collection is not the oldest law code to survive either — the Code of Ur-Nammu, from around 2100 BC, is older — but it is the longest and best preserved legal text from the ancient Near East, which is why its interest rule is the one everyone quotes. Rome inherited both the practice and the unease about it. Loan rates across the empire generally ran between about 4 and 12 percent, and the highest lawful rate, the centesimae usurae of one percent a month, worked out to 12 percent a year. Roman law also drew the line that still shapes this tool: it treated compound interest, anatocism, as the worst form of usury and forbade it. Charging interest only on the original sum was the lawful default, and that preference for simple interest carried into medieval Europe, where the Church's ban on usury pushed lenders to justify any charge as compensation for loss rather than a price for money.

The word interest records that workaround. It comes from the Latin interesse, meaning to be between or to make a difference, and in medieval law id quod interest named the loss a lender suffered when a debt was repaid late. Because that counted as compensation for damage rather than a fee for lending, it slipped past the usury prohibition; only in the 1520s did interest settle into its modern sense of money paid for the use of money. The arithmetic caught up with the practice in the late Middle Ages. The Florentine merchant Francesco Balducci Pegolotti compiled a table of compound interest, giving the interest on 100 lire at rates from 1 to 8 percent for up to 20 years, in his manuscript handbook Pratica della mercatura around 1340. Luca Pacioli's Summa de arithmetica of 1494 gave the Rule of 72 for estimating doubling times, and in 1613 the London mathematical practitioner Richard Witt published Arithmeticall Questions, the first book wholly devoted to compound interest. Simple interest needed none of that machinery — it is a single multiplication — so it became the plain baseline that commercial arithmetic measured compounding against, and the form still written into statutes, bond coupons and short-term contracts.

Where simple interest actually appears

Compound interest dominates savings and mortgages, but simple interest is far from a museum piece.

• Car loans. Most US and Canadian auto loans are simple-interest contracts: interest accrues daily on the remaining balance and is never capitalized. Paying a week early shaves a little off the total.
• Late fees and statutory interest. UK businesses can charge statutory interest of 8% over the Bank of England base rate on overdue commercial invoices, calculated as simple interest. The EU late payment directive 2011/7/EU spells it out in the definitions: statutory interest for late payment means simple interest at the reference rate plus at least eight percentage points. Court judgment interest in many US states and Australian jurisdictions is simple as well.
• Bonds. A fixed coupon pays the same cash amount every period — simple interest on face value. Compounding only enters the picture if you reinvest the coupons.
• Short-term lending. Bridging loans, pawn loans and some personal loans quote a simple monthly rate.

Simple versus compound

Compounding adds accrued interest to the balance, so each period's charge is computed on a growing base. On the default figures the gap is modest: 675 simple against 705.83 with annual compounding. Stretch the term to 10 years and it widens to 2,250 versus roughly 2,765. The shorter the term and the lower the rate, the less the distinction matters — which is exactly why simple interest survives in short-term and penalty contexts.

What this calculator assumes

The rate is treated as fixed for the whole term and no fees are included. Real lenders accrue interest daily, so the exact payoff figure on a live loan shifts with payment timing; treat the output as the contractual baseline rather than a to-the-penny payoff quote. It is also not an APR calculator — APR folds in fees and assumes scheduled payments.

This tool is for estimation and education, not financial advice; confirm exact figures with your lender or provider before acting. See the site disclaimer.

Frequently asked questions

What is the formula for simple interest?

Interest equals principal times the annual rate times the time in years, with the rate written as a percentage: I = P × r × t ÷ 100. Borrowing 5,000 at 4.5% for 3 years gives 5,000 × 4.5 × 3 ÷ 100 = 675 of interest, so the total repaid is 5,675. This is the definition used in the US SEC's investor.gov materials and in most loan paperwork.

Is a car loan simple or compound interest?

Most car loans in the US and Canada are simple-interest contracts: interest accrues daily on the outstanding principal and is never added to the balance as long as you pay on schedule. On a 25,000 loan at 7%, one day of interest is 25,000 × 0.07 ÷ 365 = 4.79, so paying a few days early genuinely trims what you owe. Precomputed-interest loans, which do not reward early payment, still exist but are uncommon and restricted in several states.

How much more does compound interest cost than simple interest?

It depends on the rate and, above all, on time. On 5,000 at 4.5% for 3 years, simple interest is 675 while annual compounding produces 705.83 — a difference of about 31. Hold the same balance for 10 years and the figures become 2,250 versus roughly 2,765, so the compounding premium grows from under 5% of the interest bill to about 23%.

How do I calculate simple interest for months instead of years?

Convert months to years by dividing by 12 and use the same formula. Nine months is 0.75 years, so 2,000 at 6% for nine months accrues 2,000 × 6 × 0.75 ÷ 100 = 90. For day counts, lenders usually divide the annual rate by 365, though some contracts use a 360-day year, which makes each day slightly more expensive.

Do savings accounts pay simple interest?

Almost never — banks in the US, UK, EU and Australia compound savings interest daily or monthly, which is why accounts advertise an APY or AER alongside the nominal rate. Simple interest is more common on fixed-coupon bonds, late-payment penalties and court-ordered interest. Over a single year the difference is small: 4.5% compounded monthly on 5,000 yields 229.70 against 225 simple.