You can use our simple interest calculator to calculate the simple interest, without compounding, on your savings or loan.
| Year | Opening Balance | Annual Interest | Closing Balance |
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Simple interest is the interest charge on borrowing that's calculated using an original principal amount only and an interest rate that never changes. If you want to work out compound interest, use our compound interest calculator instead.
Unlike compound interest, it does not factor in "interest on interest." The interest earned each period is always based on the original principal amount, leading to linear, predictable growth.
If you wish to calculate a figure for interest AND principal, the formula for this is A = P(1 + rt), where P is the initial principal, r is the interest rate and t is the time period.
For a $10,000 principal at 5% for 10 years:
I = $10,000 × 0.05 × 10 = $5,000
A = $10,000 + $5,000 = $15,000
The core difference is how interest is calculated. Simple interest is calculated only on the initial principal amount for the entire duration. Compound interest is calculated on the principal *and* on the accumulated interest from previous periods. This "interest on interest" effect makes compound interest grow much faster over time.
Simple interest is most often used for shorter-term financial products. Common examples include car loans, short-term personal loans, and certain retail installment contracts. It's less common for long-term savings or investments like savings accounts or bonds, where compound interest is the standard method used.
The formula is straightforward: Interest = Principal × Rate × Time. In this formula, 'Principal' is the starting amount, 'Rate' is the annual interest rate (as a decimal, so 5% becomes 0.05), and 'Time' is the number of years.