Simple Interest Calculator
Calculate simple interest using the formula I = P x R x T where P is principal, R is rate, and T is time.
What is simple interest and how is it calculated?
Simple interest is interest calculated only on the principal amount, not on accumulated interest. Formula: I = P x R x T, where P = principal, R = annual interest rate (as decimal), T = time in years. Example: $10,000 at 5% for 3 years = $10,000 x 0.05 x 3 = $1,500 interest.
What is the difference between simple and compound interest?
Simple interest is calculated only on principal. Compound interest is calculated on principal plus accumulated interest. Example: $10,000 at 5% for 3 years - Simple = $1,500 interest, Compound = $1,576.25 interest. Compound always earns more over time. Most savings accounts and investments use compound interest.
When is simple interest used?
Simple interest is used for: Short-term loans (under 1 year), car loans, some personal loans, certificates of deposit (CDs), and treasury bills. Most modern financial products use compound interest, but simple interest is easier to calculate and understand for basic scenarios.
How do I convert monthly rate to annual rate?
Multiply monthly rate by 12 for simple interest. Example: 0.5% monthly = 6% annual simple. For compound: (1 + monthly rate)^12 - 1. Example: 0.5% monthly compounded = (1.005)^12 - 1 = 6.17% annual. Always clarify if rates are simple or compound.