Simple Interest Calculator
A quick baseline. Simple interest does not compound — it grows linearly.
When to use simple interest
- Short-term loans or simple products.
- Quick comparisons and sanity checks.
Simple interest against compound interest, priced
Simple interest pays a fixed amount every year, calculated on the original balance and nothing else. On $10,000 at 5% that is $500 a year, forever. Compound interest pays on the balance including previous interest, so the annual amount grows. Over short periods the difference is trivial; over long ones it is the whole point.
| After | Simple interest | Compound (monthly) | Difference | Compound is ahead by |
|---|---|---|---|---|
| 1 years | $10,500 | $10,512 | $12 | 0% |
| 5 years | $12,500 | $12,834 | $334 | 3% |
| 10 years | $15,000 | $16,470 | $1,470 | 10% |
| 20 years | $20,000 | $27,126 | $7,126 | 36% |
| 30 years | $25,000 | $44,677 | $19,677 | 79% |
At one year the gap is about $12 — not worth a decision. At thirty years compound has produced $34,677 of growth against simple interest's $15,000, a difference of $19,677. Same rate, same deposit, same account balance on day one.
Most consumer savings and investment products compound. Simple interest turns up in short-term loans, some bonds that pay coupons out rather than reinvesting them, certain fixed-term notes, and in exam questions. It is also what you get by accident whenever interest or dividends are paid into a current account and left there — the money stops compounding the moment it stops being reinvested.
The two formulas side by side
- Simple: A = P × (1 + r × t). The interest each year is always P × r.
- Compound: A = P × (1 + r/n)n×t. The interest each period is calculated on the current balance.
- They agree at t = 1 when compounding annually, and diverge from there. Any comparison over a single year is telling you almost nothing.
- Simple interest is linear, compound is exponential. That distinction is why compound projections look unremarkable early and dramatic late.
For the full comparison with charts and worked examples, see compound interest vs simple interest. For the compound side on its own, the main calculator shows the year-by-year path.
Questions about simple interest
What is the simple interest formula?
A = P × (1 + r × t), where P is the principal, r the annual rate as a decimal and t the years. On $10,000 at 5% for 10 years that gives $15,000.
Is simple interest ever better than compound?
For a saver, never — at the same rate, compound always pays at least as much. For a borrower it is the reverse: simple interest on a debt is cheaper than compound interest at the same rate.
Why do exam questions use simple interest?
Because it isolates the concept of interest without the extra machinery of compounding. It is a teaching device more than a description of most real products.
Does simple interest ever apply to savings accounts?
Rarely by design, but often in effect. If interest is paid into a separate account and never reinvested, the balance grows linearly — which is simple interest by another name.