How to use the Simple Interest Calculator
- Enter the principal amount.
- Enter the annual interest rate.
- Enter the time in years — use decimals for months, so 90 days is about 0.25.
- Compare the simple interest figure against the compound equivalent shown alongside it.
How the calculation works
Simple interest accrues on the original principal only, never on interest already earned. This makes it linear in time, which is why it is used for short-dated instruments — bridging loans, some auto notes, and most Treasury bill discount conventions — where the compounding difference is negligible.
Over long horizons the gap becomes large. At 5% for thirty years, simple interest returns 150% of principal while annual compounding returns about 332%. Any product quoting simple interest over a long term is quietly cheaper for the borrower and worse for the saver.
Watch the day-count convention in contracts: 365/365, 360/360 and actual/360 produce different accruals for the same nominal rate, and actual/360 quietly adds about 1.4% to interest charged.
I = P × r × t; A = P(1 + rt)Source: Standard simple-interest convention; ICMA and SIFMA day-count conventions for money market instruments.
Worked example
$10,000 at 5% for 3 years.
- Annual interest is $500.
- Over three years that is $1,500.
- Final balance is $11,500.
$1,500 simple against about $1,576 with annual compounding — a $76 difference at this horizon.
Frequently asked questions
Which loans use simple interest?+
Most US auto loans, many personal loans and short-term commercial paper. Credit cards do not — they compound daily.
Is simple interest better for borrowers?+
Yes, all else equal, because interest never accrues on unpaid interest.
How do I handle months?+
Divide months by twelve. Six months is 0.5 years.
Last reviewed September 1, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.