Simple interest formula
I = P × r × t
A = P + I
A = P + I
P is the principal, r the annual rate as a decimal and t the time in years. A is the total amount at the end.
Example: $5,000 at 6% simple interest for 3 years earns 5,000 × 0.06 × 3 = $900, for a total of $5,900. For only 90 days, the interest would be 5,000 × 0.06 × 90 ÷ 365 = $73.97.
Simple vs. compound: a quick comparison
With simple interest, the same $300 is added every year to a $5,000 deposit at 6%. With annual compounding, year one adds $300, year two $318, year three about $337 — because interest is earned on interest. After 3 years compound interest gives $955 instead of $900; after 20 years the gap is about $5,000. Use the compound interest calculator to explore.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal. Compound interest is also charged or earned on previously added interest. Over short periods the difference is small; over many years compound interest grows much faster.
Where is simple interest used?
Simple interest is common in some auto loans, short-term personal loans, Treasury bills, certificates of deposit that pay out interest, and interest calculations between parties (such as late-payment interest on invoices).
How do I calculate simple interest for days?
Convert days to years by dividing by 365 (some lenders use 360). $5,000 at 6% for 90 days earns 5,000 × 0.06 × 90/365 = $73.97.
How do I find the rate or time instead?
Rearrange the formula: rate = I ÷ (P × t) and time = I ÷ (P × r). For example, if $1,000 earned $150 in 3 years, the rate is 150 ÷ (1,000 × 3) = 5%.