How simple interest works
Unlike compound interest, simple interest is calculated once on the original principal and stays constant every period — it never earns interest on itself.
- I — interest earned
- P — principal
- r — annual interest rate (as a decimal)
- t — time in years
Common values
| Principal | Interest earned |
|---|---|
| 100,000 | 15,000 |
| 250,000 | 37,500 |
| 500,000 | 75,000 |
| 1,000,000 | 150,000 |
| 1,500,000 | 225,000 |
| 2,000,000 | 300,000 |
| 3,000,000 | 450,000 |
| 5,000,000 | 750,000 |
| 10,000,000 | 1,500,000 |
More detail
Simple vs. compound interest
With simple interest, the amount of interest earned each year is identical because it's always based on the original principal. Compound interest instead adds interest to the principal each period, so later periods earn interest on interest.
Where it's used. Simple interest is common for short-term loans, car loans, and some bonds — anywhere the lender wants a predictable, linear interest schedule.
Frequently asked questions
How much more does compound interest earn than simple interest?
The gap is zero at year one and then widens every year after, since compounding adds interest-on-interest. At 5% for 10 years on 1,000,000, simple interest gives 500,000 (I = P×r×t) while compound interest (annual) gives about 628,895 — try the compound interest calculator with the same numbers to see the exact difference.
Why is my rate entered as a percentage but the formula uses a decimal?
The formula I = P × r × t expects r as a decimal (5% = 0.05); this calculator's input field takes the percentage number and converts it automatically, so just enter "5" for 5% — no manual conversion needed.
Does the interest change if I extend the term?
Yes, linearly — because simple interest is calculated only on the original principal each period, doubling the years exactly doubles the interest earned (interest is proportional to t in I = P × r × t), unlike compound interest which grows faster than proportionally.