How to calculate simple interest
Simple interest is charged only on your original principal, never on the interest it earns, so the balance grows in a straight line. This simple interest calculator works it out: enter a principal, an annual rate, and a time period in years, months, or days to see the interest earned and the total amount. Switch to find-principal mode to get the deposit a target interest amount requires.
How to use it
- Enter the principal (the amount deposited or borrowed).
- Set the annual interest rate.
- Enter the duration and choose the unit: years, months, or days.
The result updates as you type. In find-principal mode you enter the interest you want to earn instead, and the calculator solves for the principal.
The simple interest formula
Time is always converted to years first, with months divided by 12 and days by 365, so a six-month note or a 91-day Treasury bill calculates correctly without manual conversion.
Interest over months or days
Switch the unit to Months or Days for short-term instruments. Treasury bills, commercial paper, and short bridge loans are priced on simple interest, and the calculator handles the fraction of a year for you:
This is also how bank interest is quoted on fixed deposits with terms shorter than a year in many countries.
Where simple interest is actually used
Simple interest appears more often than you might expect:
- Treasury bills and money market instruments — priced on simple interest for terms under one year
- Short-term personal and auto loans — some lenders use simple interest, meaning early repayment directly reduces the interest owed
- Promissory notes and bridge financing — typically simple interest for clarity
- Education loans (some jurisdictions) — interest accrues simply during the grace/study period before switching to amortized repayment
For anything held longer than a year or with reinvested interest, compound interest is the norm. Use the compound interest calculator for those scenarios.
Simple vs compound interest: the difference
The difference is what happens to the earned interest. Simple interest pays a flat amount every period. Compound interest adds the earned interest back to the balance, so the next period earns interest on interest. Over short periods the gap is small; over long ones it grows dramatically:
Over 20 years the compound return is more than 65% higher than simple interest at the same rate. This is why long-term savings almost always use compound interest, and why the distinction matters less for short-term instruments.
Working backward: find the principal
Switch to find-principal mode when you know the interest income you want and need the deposit that produces it. Enter the target interest, the rate, and the time, and the calculator rearranges the formula to solve for the principal:
Use this mode to size a deposit against an income goal — for example, finding the principal needed to generate a specific annual interest income from a fixed deposit.
For borrowing that repays over time on an amortization schedule rather than a single simple-interest charge, use the loan calculator.
Frequently asked questions
Where is simple interest actually used in practice?
Mostly short-term instruments: Treasury bills, commercial paper, some auto and personal loans, promissory notes, and bridge financing. Bank fixed deposits under one year are often quoted as simple interest. Longer-term savings and mortgages almost always compound.
How do I calculate interest for 91 days (like a T-bill)?
Switch the unit to 'Days' and enter 91. The calculator converts days to a fraction of a year (91/365) automatically, so you get the exact simple interest for that period without manual conversion.
When is simple interest better than compound?
As a borrower, simple interest is always cheaper because interest is never charged on interest. As a saver, compound interest earns more. The difference is small for short periods (under a year) but grows significantly over time.
Does paying off a simple interest loan early save money?
Yes, directly. With simple interest, the interest owed is calculated on the remaining principal and time left. Paying early reduces both, so you pay less total interest. This is different from some compound/precomputed loans where early payoff savings are less straightforward.
Why does the calculator show a compound comparison?
To help you see the opportunity cost. The insight line shows how much more the same principal would earn if it compounded at the same rate. Over 3 years the gap is small; over 10+ years it becomes substantial, which is why long-term savings should always compound.