Simple Interest Calculator
Simple interest is calculated only on the original principal, not on accumulated interest. Use the formula I = P × r × t to find how much interest you earn or owe.
Calculate simple interest
P = Principal | r = Annual rate | t = Time in years
Related: Compound Interest · Savings Interest
How the simple interest calculator works
Simple interest is calculated using the formula I = P × r × t, where P is the principal (the original amount), r is the annual interest rate expressed as a decimal, and t is the time in years. Unlike compound interest, simple interest is always calculated on the original principal — it does not accumulate on previously earned interest. This makes it straightforward to calculate and easy to understand, though it produces lower returns over time than compound interest at the same rate.
In the UK, simple interest is most commonly encountered in short-term loans, certain government bonds, and some deposit accounts that credit interest at maturity rather than periodically. It is also frequently used as an introduction to interest calculations in financial education. The comparison section of this calculator shows you the difference between simple and compound interest over the same term and rate, which makes the long-term advantage of compounding very clear.
If you are using this calculator to estimate interest owed on a debt or earned on an investment, remember that most real-world financial products use compound interest. For borrowing costs, always refer to the product's stated APR, which accounts for compounding and fees to give you the true annual cost.
Frequently asked questions
What is simple interest?
Simple interest is a method of calculating interest where the charge is based only on the original principal amount, never on accumulated interest. The formula is I = P × r × t, where I is the interest, P is the principal, r is the annual interest rate as a decimal, and t is the time in years. Simple interest does not compound, so the amount earned or charged stays proportional to the original sum throughout the entire period.
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal, while compound interest is calculated on the principal plus any previously accumulated interest. Over longer periods, compound interest grows significantly faster. For example, £5,000 at 5% simple interest over 10 years earns £2,500. The same sum at 5% compounded annually earns approximately £3,144. The difference becomes more pronounced the longer the period and the higher the rate.
When is simple interest used?
Simple interest is commonly used for short-term loans, car loans in some cases, Treasury bills, and certain types of bonds and mortgages (particularly in the US). In the UK, most savings accounts and mortgages use compound interest. However, simple interest is a useful baseline for quick calculations and is often taught as the foundation before introducing compound interest concepts.
How do I calculate simple interest manually?
Use the formula I = P × r × t. For example, if you invest £2,000 at an annual rate of 4% for 3 years: I = 2000 × 0.04 × 3 = £240. The total amount at the end is P + I = £2,240. To convert an annual percentage rate to a decimal, simply divide by 100 (e.g. 4% becomes 0.04). If the time period is in months, divide by 12 to convert to years before applying the formula.