Simple interest calculator
Most saving and borrowing compounds, so simple interest sounds like a textbook curiosity. It is not: car loans in many markets, some personal loans, short-term bridging finance and most bond coupon payments are simple. The distinction matters because a headline rate quoted simply is a different product from the same rate quoted compounding, and over five years at 5% the gap is nearly a quarter of the interest.
Simple interest is principal × rate × time. Ten thousand at 5% for five years earns 2,500, for a total of 12,500. The same money compounding annually would earn 2,762 — the difference is interest on interest.
How to calculate simple interest
The gap between simple and compound interest grows with both time and rate, and it grows non-linearly. Over one year there is no difference at all. Over five years at 5% it is about 10% of the interest; over thirty years at 8% the compound figure is more than twice the simple one. That asymmetry is why the distinction is trivial for a short car loan and decisive for a pension, and why any quoted rate should always come with a compounding frequency attached.
Questions
I = P × r × t — principal times annual rate times time in years.