Simple Interest Calculator
Simple interest is calculated only on the original principal, not on accumulated interest. Enter your principal, rate, and time to see total interest earned and a year-by-year breakdown.
Simple interest is the most basic interest calculation: a fixed percentage of the original principal, earned each period, regardless of how much interest has already accumulated. If you deposit $10,000 at 5% simple interest, you earn $500 per year for as long as the deposit lasts — year 1 earns $500, year 5 earns $500, year 20 earns $500. The interest never compounds onto itself.
Real-world simple interest is rarer than compound interest. Most savings accounts, investments, and loans use compound interest, where earned interest gets added to the principal and starts earning interest itself. Simple interest still applies in a few common cases: most U.S. auto loans, certain short-term personal loans, traditional U.S. Treasury bonds (where coupons are paid out rather than reinvested), and certain promissory notes. Understanding simple interest is also useful as a baseline for appreciating why compound interest is so much more powerful over time.
This calculator computes the total interest earned and the year-by-year accumulation for a simple-interest scenario. Use it for analyzing fixed-coupon bonds (where you take the income rather than reinvest), traditional savings instruments that don't compound, and educational comparisons against compound interest to see the difference. The math is straightforward but the contrast against compounding is instructive — and is the foundation for why financial advisors emphasize starting to invest early.
Inputs
Results
Total Amount
$12,500
Total Interest
$2,500
Principal
$10,000
Balance Over Time
Principal vs Interest
Year-by-Year Breakdown
| Year | Start Balance | Interest | End Balance |
|---|---|---|---|
| 1 | $10,000.00 | $500.00 | $10,500.00 |
| 2 | $10,500.00 | $500.00 | $11,000.00 |
| 3 | $11,000.00 | $500.00 | $11,500.00 |
| 4 | $11,500.00 | $500.00 | $12,000.00 |
| 5 | $12,000.00 | $500.00 | $12,500.00 |
Formula
How to use this calculator
- Enter the principal — the initial amount of money.
- Enter the annual interest rate as a percentage (the calculator handles the decimal conversion).
- Enter the time period in years.
- Review the total interest earned and the year-by-year balance.
- For comparison with compounding, run the same numbers through the compound interest or future value calculator. Notice that for short horizons (1–3 years), the two calculations are close; for long horizons (10+ years), compounding produces substantially more.
- For auto loan analysis: most U.S. auto loans use simple interest. Total interest is loan amount × rate × years. The calculator gives the total cost above principal across the loan life.
- For bond analysis (taking coupons as cash rather than reinvesting): this calculator approximates the total interest income over a known holding period.
- For "savings rate vs. inflation" comparison: simple interest models how a non-compounding cash position would track against inflation. Spoiler: it doesn't keep up over long periods.
Worked examples
Short-term auto loan
$25,000 auto loan, 7% APR, 5-year term, simple interest. I = 25,000 × 0.07 × 5 = $8,750 Total payments: $33,750 (over 60 months) Monthly payment: ~$495 A simple-interest auto loan accrues interest only on the remaining principal each month. As principal is paid down, less interest accrues. This is why early payments are mostly interest and later payments are mostly principal — the calculator output approximates total interest over the loan's life.
Treasury bond income (no reinvestment)
$50,000 in 10-year Treasury notes paying 4.5% annual coupon, taking the coupons as cash income rather than reinvesting. Annual interest: $50,000 × 0.045 = $2,250 Total interest over 10 years: $22,500 Principal returned at maturity: $50,000 Total received: $72,500 If you had reinvested coupons at the same 4.5%, the compound interest formula would produce ~$27,615 of total interest — about $5,115 more than the simple interest approach. The "spend the income" path is simpler but leaves money on the table over long horizons.
Simple vs compound — the key contrast
$1,000 principal at 8% interest for 40 years. Simple interest: I = 1,000 × 0.08 × 40 = $3,200. Final balance: $4,200. Compound interest (annual): A = 1,000 × 1.08^40 = $21,725. Final balance: $21,725. Compound interest produces over 5x the simple result. This gap — between linear growth and exponential growth — is why "compound interest" is sometimes called "the eighth wonder of the world." Starting investing 10 years earlier almost doubles the eventual balance because of the extra decade of compounding.
When to use this calculator
Use this calculator when working with financial products that genuinely use simple interest — most U.S. auto loans, certain short-term personal loans, traditional fixed-coupon bonds where you take income rather than reinvest, and some promissory notes between individuals.
It's also useful as a teaching tool. The contrast between simple and compound interest at long time horizons is one of the most important concepts in personal finance — and seeing the actual numbers is more convincing than reading about it. Run the same scenario through this calculator and the compound interest calculator to see the gap.
For most actual investing decisions, compound interest is the relevant math. Savings accounts, money market funds, mutual funds, ETFs, dividends reinvested via DRIP, and any retirement account all compound. Simple interest understates expected returns from these.
Pair this with the compound-interest calculator (for the standard investment math), the future-value calculator (handles both lump-sum and ongoing contributions with compounding), and the auto-loan calculator (for the detailed amortization of a simple-interest auto loan).
A practical use case worth noting: for personal loan agreements between family members or friends, simple interest is often the right structure (cleaner accounting, easier to verify, applicable interest rules under IRS imputed interest rules). The IRS publishes Applicable Federal Rates (AFRs) — the minimum interest rate to charge on a family loan to avoid imputed-interest tax issues. Simple interest at the AFR is a clean, defensible structure.
Common mistakes to avoid
- Confusing simple interest with compound interest. Simple interest is linear (same dollars per period); compound interest is exponential (growing dollars per period). For long horizons, the difference is enormous.
- Assuming all loans use simple interest. Most credit cards and many other consumer loans use daily compounding, not simple interest. Auto loans are the major exception in the U.S. consumer credit market.
- Treating bond coupon income as compound returns. If you take bond coupons as cash income (rather than reinvesting), you're getting simple-interest-equivalent returns on the original principal. The bond's "yield to maturity" assumes coupons are reinvested at the same rate.
- Using simple interest to project investment growth. Savings accounts, brokerage accounts, mutual funds, ETFs, and almost all investment products compound. Simple interest substantially understates expected long-term growth.
- Forgetting that early loan payments are mostly interest. A simple-interest loan still accrues interest only on remaining principal — but since the balance is highest at the start, the dollar amount of interest in early payments is the largest. This is normal amortization.
- Confusing APR with simple interest. APR (Annual Percentage Rate) is the stated annual rate; it can refer to either simple or compound interest depending on the product. Read the loan terms to know which.
Frequently Asked Questions
Sources & further reading
- Compound Interest Calculator and Educational Materials — U.S. Securities and Exchange Commission
- Applicable Federal Rates (AFR) for family loans — U.S. Internal Revenue Service
- TreasuryDirect — buy Treasury securities directly — U.S. Department of the Treasury