Understanding Simple Interest
Simple interest is calculated only on the principal — no compounding. It's used in some loans and bonds.
What is Simple Interest?
With simple interest, you earn (or pay) a fixed amount each period based on the original principal. The interest does not get added to the principal. Formula: I = P x r x t, where P is principal, r is rate (as decimal), t is time in years.
📊 Use our Simple Interest Calculator to compute it instantly.
Simple vs Compound Interest
Compound interest earns interest on interest — your balance grows faster. Simple interest stays flat. Over long periods, compound interest yields much more. See our Compound Interest guide for comparison.
Where is Simple Interest Used?
- Short-term loans — Auto loans, some personal loans
- Bonds — Some fixed-income securities
- Student loans — In some countries
Calculating Simple Interest
Use our Simple Interest Calculator to compute interest quickly. Enter principal, rate, and time — the result shows total interest and final amount.
When to Use Compound Instead
For long-term savings (e.g. retirement, education funds), compound interest usually applies. Our Compound Interest guide and Compound Interest Calculator show how interest on interest grows your money over time.
For informational purposes only. Not financial advice.