WorkedMathGlossary

Simple Interest Calculator

Enter a principal, rate, and number of years below to instantly get the interest earned.

Total Amount
$1150
Interest earned: $150

The Simple Interest Formula

I = P × r × t

The most common mistake is plugging in time as months instead of years. The formula expects t in years, so a 6-month loan uses t = 0.5, not t = 6 — skip that conversion and the interest comes out 12 times too high.

Worked example

$1,000 at 5% annual interest for 3 years.

I = 1000 × 0.05 × 3 = $150

Total amount: 1000 + 150 = $1,150

A second example: $2,500 at 4.5% annual interest for 6 months.

Six months is 0.5 of a year, so I = 2500 × 0.045 × 0.5 = $56.25

Total amount: 2500 + 56.25 = $2,556.25

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Frequently Asked Questions

What is the simple interest formula?

Simple interest = principal × rate × time (I = Prt), where rate is the annual rate as a decimal and time is in years.

How is simple interest different from compound interest?

Simple interest is always calculated on the original principal only. Compound interest is calculated on the principal plus any interest already earned, so it grows faster over time.

Where is simple interest actually used?

Some short-term loans, car loans, and certain bonds use simple interest. Most savings accounts and long-term investments use compound interest instead.

How much more does compound interest earn than simple interest?

It depends on the rate and time, but the gap grows the longer money sits. Compound interest uses A = P(1 + r)^t. On $1,000 at 5% for 3 years, simple interest totals $1,150, while interest compounded annually totals 1000 × 1.05³ ≈ $1,157.63 — about $7.63 more, just from earning interest on interest already credited.

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