Simple Interest Calculator
Simple Interest Calculator
Simple interest on a principal for any number of years, months and days — and, alongside it, what the same money would earn compounded yearly.
Simple interest
$1,00,000 at 8% a year for 3 years
Simple interest
- P
- the principal
- R
- the annual rate in %
- T
- the time in years: years + months ÷ 12 + days ÷ 365
- W, F
- the whole years in T, and the part-year left over, which earns simple interest — the usual broken-period treatment. In today’s money, P + SI × (1 − tax) is divided by (1 + inflation)T
Worked example
$1,00,000 at 8% a year for 3 years
SI = 1,00,000 × 8 × 3 ÷ 100 = $24,000
Compounded yearly: 1,00,000 × 1.083 − 1,00,000 = $25,971
Compounding earns $1,971 more over the three years
For 90 days instead: 1,00,000 × 8 × 90 ÷ 36,500 = $1,973
1,00,000 at 8%: simple against yearly compound
| Years | Simple interest | Compound interest | Difference |
|---|---|---|---|
| 1 | $8,000 | $8,000 | $0 |
| 2 | $16,000 | $16,640 | $640 |
| 3 | $24,000 | $25,971 | $1,971 |
| 5 | $40,000 | $46,933 | $6,933 |
| 10 | $80,000 | $1,15,892 | $35,892 |
| 20 | $1,60,000 | $3,66,096 | $2,06,096 |
Where simple interest is used
Simple interest is charged or paid on the original amount only. Interest earned is not added to the principal, so each year earns the same. It is the arithmetic behind the interest paid out on a payout fixed deposit, the broken-period interest on a deposit that ends part-way through a quarter, many short informal loans, and the flat rate some car and consumer loans are quoted in.
For short periods the two methods barely differ: over one year compounded yearly they are identical. Over long periods the gap is large, as the table shows. That is why a flat-rate loan looks cheap beside a reducing-balance loan, and why reinvested interest on a deposit grows faster than interest paid out.
A note on days. This page divides days by 365. Some lenders and markets use 360 days or count the actual days in a leap year, which moves the answer slightly; check which your agreement uses. Interest earned is generally taxable. For deposits compounding quarterly use the FD calculator, and for other frequencies the compound interest calculator.
The chart draws the two methods side by side against the principal; where the term ends part-way through a year, the last point is the end of the term. Tax and inflation shrink both. On the worked example, $1,00,000 at 8% for three years earns $24,000; a lender whose marginal rate is 30% keeps $16,800, and after three years of 5% inflation the $1,16,800 buys what $1,00,896 buys today: a real return of 0.30% a year. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
What is the simple interest formula?
SI = P × R × T ÷ 100. $1,00,000 at 8% for 3 years earns $24,000.
How do I calculate simple interest for days?
Use T = days ÷ 365. For 90 days, $1,00,000 at 8% earns 1,00,000 × 8 × 90 ÷ 36,500 = $1,973.
What is the difference between simple and compound interest?
Compound interest also earns interest on past interest. Over 3 years at 8% on $1,00,000 the difference is $1,971; over 20 years it is $2,06,096.
What is the interest worth after tax and inflation?
Take your tax rate off the interest, then divide principal plus interest by (1 + inflation)years. $1,00,000 at 8% for 3 years, taxed at 30%, with 5% inflation, comes back worth $1,00,896 in today’s money: a real return of 0.30% a year.
Related calculators
References
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. The present value of an annuity, from which the level-payment loan formula and its inverse follow.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.
- U.S. Securities and Exchange Commission, Investor.gov. Compound Interest Calculator and glossary entries for simple and compound interest. https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator