Simple Interest Calculator (vs. Compound)
Enter a principal, rate, and term to get interest earned and the final amount under simple interest, where the math is a straight line. A year-by-year table shows the same numbers with compounding, so you can watch the gap open up.
The starting amount that earns (or owes) interest
View
Interest earned
$5,000
$10,000 × 5.00% × 10 years
Final amount
$15,000
principal plus all interest
Interest per year
$500
the same every year: interest never earns interest
Simple vs compound, year by year
| Year | Simple balance | Compound balance | Compound advantage |
|---|---|---|---|
| 1 | $10,500 | $10,500 | $0 |
| 2 | $11,000 | $11,025 | +$25 |
| 3 | $11,500 | $11,576 | +$76 |
| 4 | $12,000 | $12,155 | +$155 |
| 5 | $12,500 | $12,763 | +$263 |
| 6 | $13,000 | $13,401 | +$401 |
| 7 | $13,500 | $14,071 | +$571 |
| 8 | $14,000 | $14,775 | +$775 |
| 9 | $14,500 | $15,513 | +$1,013 |
| 10 | $15,000 | $16,289 | +$1,289 |
Compound column assumes annual compounding with no added contributions. Savings accounts typically compound daily or monthly, which nudges the compound side slightly higher still.
The whole formula: I = P × r × t
Interest equals principal times the annual rate times the time in years, and that's the entire machine. Put $10,000 to work at 5% for 10 years: 10,000 × 0.05 × 10 = $5,000 of interest, for a final amount of $15,000. Every year contributes the same $500 because the interest is always computed on the original $10,000; nothing you've earned ever joins the principal. That's what makes simple interest linear: double the time, double the interest, no surprises in either direction.
What compounding does to the same inputs
With annual compound interest, each year's earnings join the principal before the next year is calculated: $10,000 × 1.05 to the 10th power is about $16,289, or $1,289 more than the simple version. Year one is identical ($500 either way); year two the compound side earns $525 instead of $500; by year ten it earns $776 a year and accelerating. The table above makes the divergence concrete, and the compound interest calculator extends the story with monthly contributions and different compounding frequencies.
Where simple interest still shows up
- Most car loans: interest accrues on the declining balance, so extra payments genuinely cut the total cost.
- Some personal loans: same mechanics, though a minority are precomputed (add-on) loans where the interest is fixed up front and early payoff saves little.
- Treasury bills: quoted on a simple-interest discount basis against face value and a 360-day year, which is why the advertised discount rate reads a touch lower than the true yield.
When the difference is worth caring about
Over a few months, simple and compound answers land within a few dollars of each other, so either mental model works for short-term decisions. Over years, the compounding side runs away with it, which cuts both directions: as a saver you want your money compounding (that's the argument for accounts quoted in APY), and as a borrower you want simple interest on a declining balance, because it rewards every early dollar. When a product quotes a bare rate, the useful reflex is to ask which of these two machines is actually running underneath.
Frequently asked questions
What is simple interest?
Simple interest is interest calculated only on the original principal: principal times rate times time. The interest never earns interest of its own, so the balance grows in a straight line. A $10,000 principal at 5% earns the same $500 every single year.
Are car loans simple interest?
Most U.S. auto loans are simple interest calculated on the declining balance: each month's interest is that month's balance times the monthly rate, and the rest of your payment reduces principal. That's why paying early or paying extra shrinks the total interest. A minority of lenders use precomputed interest instead, which fixes the total up front, so it's worth checking the contract.
Do savings accounts pay simple interest?
Almost never. Savings accounts, HYSAs, and CDs typically compound daily or monthly, which is why they advertise APY, a figure that includes compounding, rather than a simple rate. Over a few months the difference is small; over decades it's enormous.
How is simple interest different from compound interest?
Simple interest is earned only on the original principal, so growth is linear. Compound interest is earned on the principal plus all previously earned interest, so growth accelerates. At 5%, $10,000 earns $5,000 of simple interest over 10 years but about $6,289 with annual compounding, and the gap keeps widening every year after that.
Why are Treasury bills quoted differently?
T-bills don't pay periodic interest: you buy at a discount and receive face value at maturity. The quoted discount rate is a simple-interest-style annualization based on face value and a 360-day year, which slightly understates the true return. The investment yield, based on your actual purchase price and a 365-day year, is the number to compare against savings rates.
Does this calculator save my numbers?
No. Everything runs in your browser and nothing you type is stored or sent anywhere.
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