Simple Interest Calculator: Loans & Bonds
Use this simple interest calculator to compute interest the easy way: a fixed dollar amount each period, calculated on the original principal only — no compounding.
How this calculator works
Simple interest is calculated only on the original principal, not on accumulated interest. The formula has been the same for centuries because the math is genuinely that clean:
The simple interest formula
- I
- Interest earned over the full term
- P
- Principal — the original amount borrowed or invested
- r
- Annual interest rate as a decimal (5% → 0.05)
- t
- Time in years (use fractions for partial years: 6 months = 0.5)
The final balance is simply P + I. Monthly interest is P × r ÷ 12 and stays constant every month — unlike compound interest, which grows each period as it earns on itself.
Simple vs compound interest
On a $5,000 deposit at 5% for 3 years, simple interest earns $750. Compound interest (monthly compounding) earns $808 — 8% more. The gap widens dramatically over longer periods, which is why compound interest matters so much for retirement savings and why simple interest is generally better for borrowers paying off a loan early.
Where simple interest shows up
Most US auto loans use daily simple interest on the outstanding balance. Short-term personal loans, US Treasury bills, and some bonds also use simple interest. Almost all savings accounts and CDs use compound interest instead.
Source: US lending and savings disclosure rules require lenders to publish the simple interest rate (APR) under the Truth-in-Lending Act, 12 CFR § 1026, and banks to publish the compounded yield (APY) under the Truth-in-Savings Act, 12 CFR § 1030.