Simple Interest: A Plain Guide With a Worked Example
Simple interest is the easiest kind of interest to understand, and it still shows up in loans and savings. Here is how it works, step by step.
What is the Simple Interest Calculator?
This calculator finds simple interest using the formula interest = principal times rate times time, divided by 100. The rate is the annual percentage rate and time is measured in years. Unlike compound interest, the interest here never earns further interest, so the amount grows by the same amount each year.
How to use it
- Enter the original amount, the annual interest rate and the time in years.
- Press Calculate to see the interest and the total amount.
- Change any value to compare different rates or time periods.
Worked example
Save 10,000 at 5% per year for 3 years. The tool gives interest of 1,500 and a total amount of 11,500.
What is the simple interest formula?
Simple interest equals the principal multiplied by the annual rate multiplied by the time in years, divided by 100. Because the calculation always uses the original principal, the interest is the same each year. To find what you get back in total, just add the interest to the principal.
Frequently asked questions
When is simple interest used?
It is commonly used for short-term loans and some savings products where interest is calculated only on the original amount, not on interest already earned.
How is the total amount calculated?
The total amount is the original amount plus the interest. For example, 10,000 at 5% for 3 years earns 1,500 in interest, giving a total of 11,500.