Simple Interest Calculator
Calculate interest earned on a principal amount using the simple interest formula: I = P × r × t
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Interest Earned
£150.00
Total Amount
£1,150.00
Monthly Interest
£4.17
What Is Simple Interest?
Simple interest is the most straightforward method of calculating interest on a loan or investment. Unlike compound interest, which calculates interest on both the principal and previously accumulated interest, simple interest is calculated only on the original principal amount. This makes it easy to understand and predict exactly how much interest you will pay or earn over a given period.
The formula for simple interest is: I = P × r × t, where P is the principal (the initial amount), r is the annual interest rate expressed as a decimal, and t is the time period in years. The total amount at the end of the period is simply the principal plus the interest: A = P + I.
Simple interest is commonly used for short-term loans, car loans, and some personal loans. It is also used in certain savings accounts and government bonds. Because the interest does not compound, borrowers pay less over time compared to compound interest loans — making it a more favourable arrangement for the borrower.
For example, if you invest £1,000 at a 5% annual simple interest rate for 3 years, you earn £150 in interest (£50 per year), giving you a total of £1,150. With compound interest at the same rate, you would earn slightly more because each year's interest is added to the principal before the next year's interest is calculated.
Understanding the difference between simple and compound interest is essential for making informed financial decisions — whether you are taking out a loan, opening a savings account, or planning an investment strategy.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus any interest already earned, causing it to grow faster over time.
Is simple interest better for borrowers or lenders?
Simple interest is generally better for borrowers because the total interest paid is lower than with compound interest. It is less favourable for lenders or investors who want their money to grow faster.
What types of loans use simple interest?
Many car loans, short-term personal loans, and some student loans use simple interest. Mortgages typically use amortised interest, which is a form of compound interest.
Can I use this calculator for monthly interest rates?
This calculator uses annual rates. To use a monthly rate, divide the annual rate by 12 and multiply the time period by 12 to convert years to months.
How do I calculate simple interest manually?
Multiply the principal by the annual rate (as a decimal) by the number of years. For example: £500 × 0.04 × 2 = £40 in interest.