What simple interest is
Simple interest is calculated on the original principal for the whole term. It never earns interest on interest, which is what separates it from compound interest.
It is how most fixed-term personal loans, many short-term deposits and most late-payment terms are quoted. Over a short term the difference from compounding is small; over a long one it is large, and always in the lender's favour when the loan compounds.
Simple and compound interest compared
100,000 at 8% for 10 years earns 80,000 in simple interest, for a total of 180,000. The same deposit compounded annually reaches about 215,892 - roughly 35,892 more, from nothing but interest earning interest.
The gap widens with both time and rate, which is why the compounding basis matters more than a small difference in the headline rate.
Frequently asked questions
- What is the simple interest formula?
- Interest = Principal x Rate x Time, with the rate as a decimal. A principal of 100,000 at 8% for 3 years earns 100,000 x 0.08 x 3 = 24,000 in interest, for a total of 124,000.
- How is a duration in days or months converted to years?
- Months are divided by 12 and days by 365. The calculator shows the converted figure in the working so you can see exactly what was used.
- How accurate is this?
- The arithmetic is exact and uses decimal rather than floating-point maths, so results are not skewed by rounding. Where a calculation depends on legislation, the page shows which rule year it used, when those rules were last checked and the official source they came from. Results are estimates for information, not advice.
- Are my figures sent anywhere?
- No. Every calculation runs inside your browser. Nothing you type - salary, income, dates or amounts - is sent to our servers, stored or logged. You can disconnect from the network after the page loads and the calculator keeps working.