Simple interest is calculated only on the original principal amount. It does not add interest on top of previous interest.
Use the calculator first, then read the guide below to understand the formula and examples.
Direct answer
Simple interest is calculated by multiplying the principal amount, annual interest rate, and time, then dividing by 100.
Formula
Simple interest = principal × rate × time ÷ 100. Total amount = principal + simple interest.
Example
If the principal is 1,000, the annual rate is 10%, and the time is 2 years, the interest is 200. The total amount is 1,200.
When simple interest is used
Simple interest can be used for basic loans, short-term calculations, classroom examples, and quick estimates where compounding is not required.
Simple interest vs compound interest
Simple interest grows in a straight line because it is based on the original amount. Compound interest can grow faster because interest is added on top of interest.
FAQs
What is principal?
Principal is the original amount of money used in the calculation.
Does simple interest compound?
No. Simple interest does not compound.
Is simple interest easier than compound interest?
Yes. Simple interest is usually easier because it uses one direct formula.