Simple Interest Calculator

Simple interest is calculated only on the original principal amount, so it does not compound (interest does not earn further interest). It is used for short-term loans, savings bonds, and some personal loans.

The formula: I = P × r × t

Where:

• I = interest earned or paid
• P = principal (the starting amount)
• r = annual interest rate (as a decimal, so 5% = 0.05)
• t = time in years

Total amount after interest: A = P × (1 + r × t) Or equivalently: A = P + I

Worked examples:

Example 1, savings: Deposit $5,000 at 4% simple interest for 3 years. I = $5,000 × 0.04 × 3 = $600 Total after 3 years = $5,600

Example 2, a loan: Borrow $2,000 at 8% simple interest for 18 months (1.5 years). I = $2,000 × 0.08 × 1.5 = $240 Total repayment = $2,240

Example 3, a car loan: $15,000 loan at 6% simple interest for 5 years: Interest = $15,000 × 0.06 × 5 = $4,500 Total = $19,500

Simple vs compound interest: With simple interest at 5% on $10,000 over 5 years: $12,500 With compound interest at 5% on $10,000 over 5 years: $12,763 The gap widens sharply over longer periods. Over 30 years the same 5% produces $43,219 compounded against $25,000 simple, so compounding roughly doubles the ending balance.

Where simple interest appears:

• Treasury bills and some government bonds
• Most car loans (US)
• Some personal loans
• Short-term business loans
• Penalty interest on late tax payments