Money calculations
How to calculate simple interest
Simple interest is calculated only on the original principal. The interest added in one period does not itself earn interest in later periods.
Open the simple interest calculatorSimple interest = principal × annual rate × time
Use the annual rate as a decimal and time in years.
Worked example
A principal of $10,000 earns 5% simple interest for 3 years.
- Convert 5% to 0.05.
- Interest = $10,000 × 0.05 × 3 = $1,500.
- Final amount = $10,000 + $1,500 = $11,500.
| Year | Interest added that year | Total interest |
|---|---|---|
| 1 | $500 | $500 |
| 2 | $500 | $1,000 |
| 3 | $500 | $1,500 |
The annual interest stays $500 because it always uses the original $10,000 principal.
Convert months to years
If the rate is annual, divide months by 12. For $2,400 at 8% for 9 months, time = 9 ÷ 12 = 0.75 years. Interest = $2,400 × 0.08 × 0.75 = $144.
For exact-day contracts, the agreement may use a 360-day or 365-day basis and may count days differently. Use the stated convention rather than assuming.
Rearrange the formula
- Principal: P = I ÷ (r × t)
- Rate: r = I ÷ (P × t)
- Time: t = I ÷ (P × r)
Keep units aligned. A monthly rate needs time in months; an annual rate needs time in years.
Simple versus compound interest
Compound interest periodically adds earned interest to the balance, so future interest can be calculated on it. Simple interest grows linearly. Confirm which method the account or agreement actually uses, and account separately for fees, payments and changing rates.
Calculate simple interest online
The free Simple Interest Calculator returns interest and final amount from principal, rate and time. Results are general estimates, not financial advice.