How to Calculate Simple Interest

Simple interest is interest calculated only on the principal amount — it does not compound. This page explains the formula, shows how to rearrange it to solve for any variable, and covers real-world applications.

The Simple Interest Formula

S I = \frac{P \times R \times T}{100}

Symbol	Variable	Unit
SI	Simple Interest	$
P	Principal	$
R	Annual interest rate	% per year
T	Time	years

Step-by-Step Method

Identify P (principal), R (annual rate as a percent), and T (time in years).
Multiply: P × R × T.
Divide the result by 100.
Add SI to P to get the total amount A = P + SI.

Worked Example 1 — Savings

You deposit $2,000 in a savings account paying 4% simple interest per year for 5 years.

S I = \frac{2000 \times 4 \times 5}{100} = \frac{40 , 000}{100} = $400

ℹTotal after 5 years = $2,000 + $400 = $2,400. The same $80 is earned each year.

Worked Example 2 — Short-Term Loan

You borrow $1,500 at 8% simple interest for 9 months.

Convert months to years: T = 9 ÷ 12 = 0.75 years.

S I = \frac{1500 \times 8 \times 0.75}{100} = \frac{9000}{100} = $90

ℹTotal repayable = $1,500 + $90 = $1,590.

Rearranging the Formula

The formula can be rearranged to find P, R, or T when the others are known:

To find	Formula
Principal (P)	P = (SI × 100) / (R × T)
Rate (R)	R = (SI × 100) / (P × T)
Time (T)	T = (SI × 100) / (P × R)

Example — Finding the Rate

You earned $240 interest on $3,000 over 2 years. What was the annual rate?

R = \frac{240 \times 100}{3000 \times 2} = \frac{24 , 000}{6 , 000} = 4%

Simple Interest vs Compound Interest

With simple interest, the same dollar amount is earned every year (linear growth). With compound interest, the interest earns interest, producing exponential growth.

Year	Simple ($1,000 @ 10%)	Compound ($1,000 @ 10%)
1	$1,100	$1,100.00
2	$1,200	$1,210.00
3	$1,300	$1,331.00
5	$1,500	$1,610.51
10	$2,000	$2,593.74

⚠After 10 years at 10%, compound interest yields $593.74 more than simple interest on the same $1,000 principal — without any additional deposits.

Simple Interest Calculator — Calculate SI and total amount instantly
Simple Interest Formula — Full formula reference with variables and worked examples

Frequently Asked Questions

Is simple interest better or worse for a borrower?

Simple interest is better for borrowers because the total interest paid is lower than with compound interest over the same period. It is worse for lenders/investors for the same reason.

How do I convert a daily rate to an annual rate for simple interest?

Multiply the daily rate by 365 (or 360 for some financial instruments). For example, a daily rate of 0.02% = 0.02 × 365 = 7.3% per year.

Does simple interest apply to credit cards?

Credit cards typically use compound interest (daily compounding), not simple interest. Simple interest is more common in car loans, personal loans, and some mortgages.