Simple Interest Calculator
(no compounding of interest)Disclaimer: Whilst every effort has been made in building this tool, we are not to be held liable for any damages or monetary losses arising out of or in connection with the use of it. Full disclaimer. This tool is here purely as a service to you, please use it at your own risk.
How to calculate simple interest
To calculate simple interest, multiply your initial principal by the sum of one plus the annual interest rate (as a decimal) multiplied by the number of years you wish to calculate for. Subtract the initial principal if you want just the interest figure.
Simple interest formula
The formula for simple interest is A = P(1 + rt), where P is the initial principal, r is the interest rate and t is the time in years.
Where:
- A = the future value
- P = the initial principal
- r = annual interest rate (decimal)
- t = the time in years
Example calculation
Let's say that we want to lend a friend $5,000 at a yearly interest rate of 5% over 4 years. Your calculation might look like this:
Our formula: A = P(1 + rt)
- P = 5000.
- r = 5/100 = 0.05 (decimal).
- t = 4.
Plugging those figures into our simple interest formula, we get:
Your friend will owe you back $6,000 in 4 years time. Of that, the interest will be $1,000. The table below shows how the interest would accrue over each of the four years.
| Year | Principal | Total Interest | Total |
|---|---|---|---|
| 1 | $5,000 | $250 | $5,250 |
| 2 | $5,000 | $500 | $5,500 |
| 3 | $5,000 | $750 | $5,750 |
| 4 | $5,000 | $1,000 | $6,000 |
The concept of simple interest
A simple interest calculation takes a sum of money (principal) and calculates regular interest on that amount, without the effect of compounding. This is in direct contrast to compound interest, where accumulated interest is added back to the principal for each calculation, so that you effectively earn interest on already accumulated interest. It is this difference that makes the simple interest calculation widely regarded as least advantageous to savers and most advantageous to borrowers.
Should you wish to include compound interest in your calculations, you can use either our savings calculator or loan calculator.
How to use our simple interest calculator
To use our simple interest calculator, enter your starting balance, along with the annual interest rate and the start date (assuming it isn't today). Then, enter a number of years, months or days that you wish to calculate for. Once you click the 'calculate' button, the simple interest calculator will show you:
- The total interest earned
- The final value (principal plus accrued interest)
- A monthly breakdown of interest earned
