Simple interest does not compound: I = P × r × t.
The formula
Simple interest = principal × annual rate × years (I = P × r × t). $10,000 at 5% for 3 years earns $1,500 and is worth $11,500. Interest never earns interest, unlike compound interest.
Where it is used
Many auto loans accrue simple interest daily on the outstanding balance, US Treasury bills and some short-term loans use it, and it is a quick way to estimate interest over less than a year. For savings and investments, use the compound interest calculator.
Frequently asked questions
Simple vs compound?
Compound interest earns interest on interest.
How do I work out interest for months?
Use years as a fraction: 6 months is 0.5 years.
Is simple interest better for borrowers?
Yes, at the same rate it costs less than interest that compounds.