Content reviewed: 24 September 2026
How simple interest works
Simple interest is calculated only on the original principal. Unlike compound interest, previously earned interest does not become part of the balance used for later interest calculations.
Formula
P is the principal, r is the annual rate as a decimal, and t is the number of years.
Worked example
For a principal of 10,000 at 8% simple interest for 3 years: interest = 10,000 × 0.08 × 3 = 2,400. The final amount is 12,400.
When to use it
This calculation is useful for contracts or classroom examples that explicitly use simple interest. Many real savings products and long-term loans compound interest instead, so check the product terms before choosing a method.
If interest is added to the balance and earns further interest, use the Compound Interest Calculator instead.