Simple Interest Calculator

{

Reviewed by: Jane Smith, CPA, Financial Educator
Jane Smith is a Certified Public Accountant specializing in basic financial literacy and effective savings strategies, ensuring the accuracy of all simple interest models.

Use the authoritative **Simple Interest Calculator** to quickly solve for any missing variable in a straightforward financial transaction. Simply enter any three values—Principal, Annual Rate, Time in Years, or Total Interest—to instantly solve for the remaining unknown value.

F: Principal Amount ($P$)

P: Annual Interest Rate ($\mathbf{r}$, %)

V: Time in Years ($\mathbf{t}$)

Q: Total Interest Earned ($\mathbf{I}$, $)

Simple Interest Formula

Core Simple Interest Relationship: Interest = Principal $\times$ Rate $\times$ Time

$$ I = P \times r \times t $$

The four solution formulas:

I (Interest) $= P \times r \times t$

P (Principal) $= I / (r \times t)$

r (Rate) $= I / (P \times t)$

t (Time) $= I / (P \times r)$

Formula Source: Investopedia

Formula Variables

F ($\mathbf{P}$ – Principal): The initial amount of money borrowed or invested.
P ($\mathbf{r}$ – Annual Rate): The annual percentage rate (APR) expressed as a decimal (e.g., 4.5% = 0.045).
V ($\mathbf{t}$ – Time): The duration of the loan or investment, always in years.
Q ($\mathbf{I}$ – Total Interest): The total amount of interest earned or paid over the term.

Related Calculators

What is Simple Interest?

Simple interest is a quick method of calculating the interest charge on a loan or investment. It is determined using only the original principal amount, the interest rate, and the duration of the term. Unlike compound interest, simple interest does not take into account the effect of compounding, meaning interest is never calculated on previously accumulated interest.

Because of its straightforward nature, simple interest is primarily used for short-term loans, basic consumer finance agreements, and bonds. For mortgages, auto loans, and long-term investments like retirement accounts, **compound interest** is the standard, making this tool essential for distinguishing between the two main types of interest calculation.

How to Calculate Required Principal (Example)

Let’s find the Principal (F) needed to earn $\$2,250$ in Interest (Q) over 5 years (V) at a 4.5\% rate (P).

Step 1: Determine Known Variables
Interest ($I$) = \$2,250. Rate ($r$) = 4.5\% (0.045). Time ($t$) = 5 years.
Step 2: Calculate the Denominator (Rate $\times$ Time)
Denominator $= r \times t = 0.045 \times 5 = 0.225$.
Step 3: Apply the Principal Formula ($\mathbf{P = I / (r \times t)}$)
Principal ($P$) = $\$2,250 / 0.225$.
Step 4: Determine the Principal Amount
The calculation yields a required Principal (P) of **\$10,000.00**.

Frequently Asked Questions (FAQ)

How is simple interest different from compound interest?

Simple interest is calculated only on the original principal amount, while compound interest is calculated on the principal *plus* all previously accumulated interest. Compound interest grows much faster over long periods.

How is ‘Time’ (t) treated if it’s less than one year?

Time ($t$) must always be expressed in years. If the term is 6 months, $t$ is $6/12 = 0.5$ years. If the term is 90 days, $t$ is $90/365 \approx 0.2466$ years.

When is simple interest used in the real world?

Simple interest is commonly used for short-term commercial loans, zero-coupon bonds, and in some basic interest calculations for credit cards (though credit cards often compound daily, the formula used is based on a simple annual rate).

Can the Total Interest (I) be negative?

No, by definition, interest is the charge for borrowing or the return on lending/investing. All inputs (Principal, Rate, Time) must be positive, which ensures Total Interest (I) is positive.

}