Simple Interest Calculator
Calculate simple interest on loans or investments. I = P × r × t. No compounding.
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Simple interest: I = P × r × t. Interest does not compound.
What is Simple Interest?
Simple interest is interest calculated only on the principal amount. Unlike compound interest, it does not earn interest on interest. The formula is straightforward: I = P × r × t.
The Formula
Interest = Principal × Rate × Time
- P = Principal (initial amount)
- r = Annual interest rate (as a decimal, e.g. 5% = 0.05)
- t = Time in years
Total Amount = Principal + Interest
Example
- Principal: £10,000
- Rate: 5% per year
- Time: 3 years
- Interest: 10,000 × 0.05 × 3 = £1,500
- Total: £10,000 + £1,500 = £11,500
Simple vs Compound Interest
| Type | Formula | Growth |
|---|---|---|
| Simple | I = P × r × t | Linear |
| Compound | A = P(1 + r/n)^(nt) | Exponential |
For long-term investments, compound interest produces higher returns. Simple interest is common for short-term loans and some bonds.
Frequently Asked Questions
When is simple interest used?
Short-term personal loans, some car loans, and bonds that pay interest only on principal. Most savings and mortgages use compound interest.
How do I convert annual rate to monthly?
Divide by 12. For time, use months and divide the annual rate by 12: I = P × (r/12) × months.