Simple Interest Calculator

What this calculator tells you

Simple interest is charged or paid only on the original amount, known as the principal. It does not add to the balance and then earn interest in turn, which is the feature that separates it from compound interest. This calculator shows the interest for a term and the total amount at the end.

Simple interest is common for short-term loans, some personal loans, certain bonds and some savings products. It is simpler to calculate and easier to understand, which makes it a useful first check on a loan or deposit offer.

How the interest is worked out

Simple interest equals the principal multiplied by the annual rate, multiplied by the term in years. The total at the end is the principal plus the interest. The term must be converted into years first, so six months is half a year and 18 months is one and a half years.

A worked example

Suppose you deposit 5,000 at 4% simple interest for three years. The interest is 5,000 multiplied by 4% and by three, which is 600. The total at the end is 5,600. Under compound interest, the same deposit at 4% would have grown to about 5,624.32 over three years, so the difference is small for short terms but grows with time.

Where simple interest is used

Short-term loans and some consumer credit often charge simple interest on the amount borrowed. Because interest does not compound, the cost is predictable and easy to check against the contract. Some bonds pay simple interest, and certain savings accounts credit interest without adding it to the balance. Check the terms to see which method applies to a specific product.

Limits of the calculation

The calculator assumes a fixed rate and a term that is exactly the number of years entered. Real loans may charge fees, which are not included, and some simple-interest loans use a day count convention that changes the result slightly. Interest may also be added to the balance on certain dates, which turns it into compound interest in practice.

Tax on interest is excluded. For savings, the net return after tax is lower than the figure shown.

Checking the terms before borrowing

Simple interest on a loan is often calculated on the amount borrowed for the full term, even if you repay early. Check whether early repayment reduces the interest charged, and whether any fee applies. These terms can make a short loan considerably more expensive than the headline rate suggests.

For deposits, check how often interest is credited and whether it is paid into the account or held until maturity. Interest that is paid out and not reinvested will not earn further simple interest, which changes the total return.

Using the result

Use the calculator to check the interest on a loan or deposit, and to compare offers that use simple interest on the same basis. If you are comparing a simple-interest offer with one that compounds, convert both to the same measure, such as the total repayable or the effective annual rate, before deciding.

Comparing simple and compound offers

When one offer uses simple interest and another compounds, convert both to the total amount at the end of the same term, using the same rate and period. For short terms the difference is small, but for longer ones compounding can add considerably to the total. Compare the total repayable or the total received, and check the fees on each, before choosing.