What is simple interest?
Interest worked out only on the original amount you started with (the principal). The rate is applied to that same figure every year, so the interest added each year is identical and the total grows in a straight line.
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Simple Interest Calculator
Interest and maturity value when interest is charged only on the original principal.
I = P·r·t, A = P + I
Frequently asked questions
What does the formula I = P·r·t mean?
P is the principal (the starting amount), r is the yearly interest rate written as a decimal — for example 5% becomes 0.05 — and t is the time in years. Multiply the three together and you get I, the total interest. The maturity value A is simply the principal plus that interest.
How is simple interest different from compound interest?
Simple interest is charged only on the original principal, so each year adds the same fixed amount and the growth is a straight line. Compound interest is charged on the running balance, so it earns interest on earlier interest and curves upward — pulling ahead of simple interest over time.
How do I read the chart?
The bottom band of each bar is the principal, which never changes height. The band stacked on top is the interest, which gets taller in equal steps each year. Because every step is the same size, the top of the bars rises in a straight line — that straight-line growth is the signature of simple interest.
Where is this used in real life?
Short-term personal and car loans often quote simple interest — borrow $10,000 at 6% for 3 years and you owe $1,800 in interest. Some fixed-term deposits and bonds pay simple interest — $5,000 at 4% for 2 years earns $400. Late-payment and many car finance charges are also figured this way, so it is worth knowing the exact cost before you sign.