Simple Interest Calculator
Calculate simple interest for savings, bonds, CDs, or loans. Simple interest is calculated only on the original principal, not on accumulated interest.
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Simple Interest vs Compound Interest
Simple interest is calculated only on the original principal:
Simple Interest
Compound interest is calculated on the principal plus accumulated interest. Over time, compound interest grows exponentially while simple interest grows linearly.
I = P × r × t
I = interest earned •
P = principal amount •
r = annual interest rate (decimal) •
t = time in years
Where Simple Interest Is Used
Simple interest applies to some auto loans, short-term personal loans, Treasury bills, and some bonds. Most savings accounts and long-term investments use compound interest. Understanding which type applies helps you accurately project costs or earnings.
Frequently Asked Questions
What is simple interest?
Simple interest = Principal × Rate × Time. Interest is calculated only on the original amount, not on previously earned interest. It grows linearly, not exponentially.
When is simple interest used?
Some auto loans, short-term loans, T-bills, and certain bonds use simple interest. Most savings accounts and mortgages use compound interest.
How is simple different from compound?
Simple interest: $10,000 at 5% for 10 years = $5,000 interest. Compound interest (annually): same terms = $6,289 interest. The difference grows dramatically over longer periods.