Simple Interest Calculator
Calculate simple interest to understand how loans, savings, or investments grow with interest calculated only on the principal amount.
Loan / Investment Details
Summary
1,000.00
250.00
1,250.00
Balance Over Time
| Year | Interest Per Year | Total Interest | Balance |
|---|---|---|---|
| 1 | 50.00 | 50.00 | 1,050.00 |
| 2 | 50.00 | 100.00 | 1,100.00 |
| 3 | 50.00 | 150.00 | 1,150.00 |
| 4 | 50.00 | 200.00 | 1,200.00 |
| 5 | 50.00 | 250.00 | 1,250.00 |
Simple Interest Explained 🧮
Simple interest is a method of calculating interest based only on the original principal amount, without considering previously earned interest.
It is commonly used for short-term loans, basic savings accounts, bonds, and some types of personal or business lending.
Because interest does not compound, simple interest grows in a straight, predictable line over time.
Key Facts
- Interest is calculated only on the original principal.
- Growth or cost increases linearly rather than exponentially.
- The interest rate and time period directly determine total interest.
- Simple interest does not accelerate over time like compound interest.
- Often used in short-term loans and educational examples.
Formulas
- Simple Interest Formula
I = P × r × t- Calculates interest earned or charged. I = interest, P = principal, r = interest rate, t = time. - Total Amount
A = P + I- Calculates the final amount after interest is added to the principal.
Simple Interest on Savings
- £1,000 invested at 5% simple interest for 3 years earns £150 in interest.
- The final value after 3 years would be £1,150.
- Interest increases by the same amount each year.
Simple Interest on a Loan
- A £2,000 loan at 6% simple interest for 4 years results in £480 total interest.
- Total repayment would be £2,480.
- The interest cost remains predictable throughout the loan term.
FAQs
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal, while compound interest is calculated on both the principal and accumulated interest.
When is simple interest used?
Simple interest is commonly used for short-term loans, bonds, car loans, and some savings accounts.
Does simple interest grow faster over time?
No. Simple interest grows at a constant rate, unlike compound interest which accelerates over time.
Is simple interest better for borrowers?
Often yes, especially for short-term loans, because interest does not compound and increase costs over time.
Is simple interest realistic for investments?
Most long-term investments compound returns, but simple interest is useful for understanding basic interest mechanics.