Personal Finance · 5 min read
How to Calculate Simple Interest
Linear growth I = Prt — and how it differs from compounding
Simple interest grows in a straight line with time: I = Prt. This tutorial walks through that formula, a $1,000 / 5% / 3-year worked example, and a playground that places simple interest beside compound growth on the same principal, rate, and years. Figures are illustrative; fees and taxes are omitted.
Written by the My Calculator Stack editorial team. About our methods
These figures are illustrative. Fees, taxes, and product-specific rules are omitted. This is not investment, tax, or financial advice.
1.What simple interest is
Simple interest charges (or pays) a fixed fraction of the original principal each year. It does not add earned interest back into the balance, so later years do not earn interest on interest. Short-term notes and some consumer loans still quote simple interest. Savings accounts, CDs, and most long-term products compound instead. This page assumes a single principal and no extra deposits.
2.The formula
Interest is I = Prt. P is the principal, r is the annual rate as a decimal (5% → 0.05), and t is time in years. The total amount is A = P + I = P(1 + rt). The same equation powers the simple interest calculator on this site. Compound interest, by contrast, is A = P(1 + r/m)^{mt} — the gap is interest earned on previously credited interest.
\[ I = Prt \]
3.Worked example
Take $1,000 at 5% annual for 3 years — the same defaults as the simple interest calculator. Then I = 1000 × 0.05 × 3 = $150, and A = 1000 + 150 = $1,150. If that same principal compounded monthly (m = 12), A = 1000 × (1 + 0.05/12)^{36} ≈ $1,161.47. The $11.47 gap is interest on interest. Over short terms the difference is small; stretch t and it grows.
\[ I=1000\times 0.05\times 3=150 \]
4.Simple versus compound
Move principal, rate, and years to see I = Prt update beside a compound future value at the same P, r, and t. Compounds per year (m) apply only to the compound bar. The bars share one scale so the compounding gap is visible. This is a teaching widget — no extra deposits, no fees, no full calculator chrome. Open the simple interest calculator when you want the standalone tool.
Inline playground
Illustrative — fees and taxes omitted
Simple total (I = Prt)
$1,150.00
Interest $150.00 · compound total $1,161.47 · gap $11.47
1000 × 0.05 × 3 = 150
Illustrative only — a single principal, no extra contributions, no fees or taxes.
Open the full simple interest calculator →5.Open the full calculator
The simple interest calculator uses the same I = Prt equation, the same $1,000 / 5% / 3-year example, and the same limitation that taxes and fees are omitted. Browse other personal finance tools if you need compound interest, a loan payment, or a mortgage next.
Try it yourself
Open the related calculator and put these formulas to work.