Simple interest calculator
Simple interest is rare in the real world — but understanding it makes compound interest clearer. $10,000 at 5% simple interest for 10 years earns exactly $500/year = $5,000 total. With compound interest, the same setup earns $6,289. The $1,289 difference is what banks keep when they compound your loan but describe it as "simple" interest. Know the difference.
Good to know
Few real products use simple interest. Car title loans, some payday loans, and certain short-term promissory notes use simple interest. Most consumer debt (mortgages, credit cards, auto loans) uses compound interest. When comparing products, check whether the quoted rate is simple or compound — a 10% simple rate is genuinely cheaper than 10% compounded.
Simple interest understates true cost. If a loan is quoted as "10% simple interest over 2 years," the actual annual rate depends on payment timing. If interest is paid at the end, the effective rate is 10%/year. If paid monthly, the effective rate is lower because you're paying interest before the full period elapses.
Treasury bills use simple interest conventions. Short-term government debt is often quoted using simple interest calculations. A 26-week T-bill at 5% doesn't compound — you get exactly half of 5% for half a year. This is why T-bill yields are calculated differently than bank CD yields.
Methodology, disclaimers & sources
How it works
- Interest = Principal × Rate × Time
- Total = Principal + Interest
- No compounding — interest is calculated once on the original amount
Details & assumptions
Interest calculated on original principal only. Time typically in years. Actual financial products usually compound; simple interest is more of an educational benchmark.
Standard simple interest formula. For educational and estimation only.