Enter the principal, annual rate, and time period — simple interest only accrues on the original principal, using I = P × r × t.
Simple interest is interest calculated only on the original principal amount, for the entire time period. Unlike compound interest, which also earns interest on previously-earned interest, simple interest grows in a straight line rather than accelerating — so it's easier to calculate by hand, and generally results in less total interest over long periods than an equivalent compound rate.
Simple interest only accrues on the original principal. Compound interest also accrues on interest that's already been earned, so the balance grows faster the longer it compounds. Simple interest is common for short-term loans, some bonds, and certain legal or contractual contexts where a straightforward, predictable interest calculation is preferred. For the compounding version of this math, see the Compound Interest Calculator.
The formula is I = P × r × t, where I is the interest earned, P is the principal, r is the annual interest rate expressed as a decimal, and t is the time in years. The total amount is simply Principal + Interest, since simple interest never gets added back into the base that earns further interest.
Some auto loans, short-term personal loans, and certain promissory notes use simple interest. Most everyday consumer banking products — savings accounts, CDs, and mortgages — compound instead, so simple interest is more the exception than the rule; always check the specific terms of your loan or investment to know which method applies.
Worked example: $5,000 at 5% for 3 years: interest = 5,000 × 0.05 × 3 = $750, for a total amount of $5,750.
Over one year at the same rate they're nearly identical. Over twenty they aren't remotely comparable.
Take $10,000 at 6%. Under simple interest you earn $600 a year, every year, forever — the base never changes. After 20 years you hold $22,000. Under annual compounding the same deposit at the same rate reaches $32,071.35. The gap of $10,071.35 is larger than the entire original deposit, and it exists purely because compounding pays interest on interest.
This asymmetry is why the distinction matters more for borrowing than it looks. Simple interest is good news when you're paying and bad news when you're earning.
Credit cards are the notable opposite: they compound daily, which is why a carried balance grows so much faster than the headline APR suggests.
Some lenders advertise a flat or simple rate on the original principal for the whole term, even though you're repaying in instalments. If you borrow $10,000 at a "5% flat rate" over 3 years, you pay $1,500 in interest — but your average outstanding balance over those three years is nowhere near $10,000, it's roughly half that. The effective APR is close to double the advertised rate.
Whenever a rate is described as flat, ask for the APR instead. They are not the same number and the difference is not small.