Simple Interest Calculator

How simple interest works

Simple interest is charged on the original principal only. It never accrues on interest that has already been added, which is what separates it from compound interest and makes it far cheaper for the borrower over long periods.

interest = P x R x T / 100
total amount = P + interest

P = principal, R = annual rate in percent, T = time in years

The rate and the time must use the same unit. If your rate is annual, the time has to be in years — a nine-month loan is 0.75 years, and 100 days on a 365-day basis is 0.2740 years. Mixing a monthly rate with a term in years is the most common way this calculation goes wrong, and it inflates the answer by a factor of twelve.

A worked example

You lend 50,000 at 8% per annum for 3 years.

Interest: 50,000 x 8 x 3 / 100 = 12,000
Total repayable: 50,000 + 12,000 = 62,000
Each year accrues exactly 4,000 — the amount never changes, because it is always 8% of the original 50,000.

That flat yearly figure is the signature of simple interest. If you compute a year's interest and it grows in year two, you are looking at a compound product.

Simple against compound

Over one year at the same nominal rate the two are identical. The gap opens with time, and it opens fast.

Years at 10% on 100,000	Simple interest	Compound (annual)	Difference
1	10,000	10,000	0
5	50,000	61,051	11,051
10	100,000	159,374	59,374
20	200,000	572,750	372,750
30	300,000	1,644,940	1,344,940

The practical reading of that table: as a borrower you want simple interest, and as an investor you want compounding. It also explains why simple interest is rare on long products — lenders have little reason to offer it beyond a few years. Our compound interest calculator handles the other column.

Where you will actually meet simple interest

Short-term and bridging loans, where the term is measured in months and compounding would barely register.
Car loans and personal loans in some markets, often quoted as a "flat rate" — see the warning below.
Bond coupons, which pay a fixed percentage of face value each period and do not compound unless you reinvest them yourself.
Certain fixed deposits that pay interest out periodically rather than adding it to the balance.
Statutory interest on late payments and court awards, which is frequently defined as simple by legislation.

The flat rate trap

This matters more than anything else on this page. When a loan is advertised at a flat rate, interest is computed with the simple interest formula on the full original principal for the whole term — even though you are repaying the principal down every month. By the final month you owe almost nothing but are still paying interest as though you owed the entire amount.

Borrow 100,000 over 3 years at a 10% flat rate and you pay 30,000 in interest, repaid in 36 instalments of 3,611. The true cost, expressed as the effective annual rate a reducing-balance loan would have to charge to produce those same payments, is roughly 17.9% — not 10%. A serviceable rule of thumb is that the effective rate is close to double the flat rate for a typical multi-year term.

If you are comparing a flat-rate offer against a reducing-balance one, the flat rate is not the number to compare. Ask for the effective annual rate or APR, or model the instalment with our EMI calculator, which uses reducing balance.

Counting the time correctly

For terms shorter than a year, how days are counted changes the answer slightly. Common conventions are actual days over 365, actual days over 360, and 30-day months over 360 days. On a 100,000 loan at 12% for 90 days, the 365-day basis gives 2,959 and the 360-day basis gives 3,000. Small, but on large sums or in a dispute it is the sort of detail that gets argued over. This tool works in years, so convert your term first: divide days by 365, or months by 12.

Frequently asked questions

What is the difference between simple and compound interest?

Simple interest is always calculated on the original principal, so the amount added each year is constant. Compound interest is calculated on the principal plus all interest accrued so far, so it grows each period. They are identical over a single period and diverge sharply over long terms.

How do I enter a term in months or days?

Convert to years first. Nine months is 0.75, eighteen months is 1.5, and 120 days on a 365-day basis is 0.3288. Entering months directly against an annual rate will overstate the interest twelvefold.

Is a 10% flat rate the same as 10% interest?

No, and the difference is large. A flat rate charges interest on the full original amount for the entire term despite your balance falling every month. A 10% flat rate over three years corresponds to an effective rate near 18% on a reducing balance.

Can I use this for a fixed deposit?

Only if the deposit pays interest out to you each period rather than adding it to the balance. If interest is retained and earns further interest, it is compounding and you should use the compound interest calculator instead.

Does this include fees or tax?

No. It calculates contractual interest only. Processing fees, insurance, prepayment charges and any tax on interest income are excluded and will change what you actually pay or receive.