Quick Answer

A $10,000 principal at 5% annual simple interest for 3 years earns an estimated $1,500 in interest, for an estimated total of $11,500.

Principal Amount ($)

Annual Interest Rate (%)

Time Period (years)

Results

Common Examples

Input	Result
$10,000 at 5% for 3 years	Estimated $1,500 interest, $11,500 total
$5,000 at 8% for 2 years	Estimated $800 interest, $5,800 total
$25,000 at 3.5% for 5 years	Estimated $4,375 interest, $29,375 total
$1,000 at 10% for 1 year	Estimated $100 interest, $1,100 total

How It Works

This calculator uses the simple interest formula:

I = P x r x t

Where:

• I = total interest earned or owed
• P = principal (the initial amount)
• r = annual interest rate expressed as a decimal (e.g., 5% = 0.05)
• t = time in years

The total amount after the interest period is:

A = P + I = P + (P x r x t) = P x (1 + r x t)

Simple interest grows linearly over time. Each year adds the same fixed amount of interest, regardless of any previously accumulated interest. This is the key difference from compound interest, where interest is calculated on the principal plus any interest already earned.

Worked Example

For a $10,000 principal at 5% annual interest for 3 years: Convert the rate to a decimal: 5% = 0.05. Interest = $10,000 x 0.05 x 3 = $1,500. Total amount = $10,000 + $1,500 = $11,500. The estimated interest earned is $1,500, and the estimated total is $11,500.

Simple Interest vs. Compound Interest

With simple interest, the $10,000 at 5% earns exactly $500 per year for 3 years ($1,500 total). With compound interest (compounded annually), the same investment would earn $500 the first year, $525 the second year (5% of $10,500), and $551.25 the third year (5% of $11,025), totaling $1,576.25 in interest. The difference grows larger over longer time periods and higher rates.

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Frequently Asked Questions

What is the difference between simple and compound interest?

Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus any previously accumulated interest. Over time, compound interest produces a larger total because interest earns interest. Simple interest grows linearly, while compound interest grows exponentially.

Where is simple interest commonly used?

Simple interest is commonly used for short-term loans, auto loans, some personal loans, and certain bonds (such as Treasury bills). It is also used in some savings instruments with fixed terms. Most mortgages and savings accounts, however, use compound interest.

How do I convert a monthly rate to an annual rate?

Multiply the monthly rate by 12. For example, a monthly rate of 0.5% equals an annual rate of 6% (0.5% x 12). Enter the annual rate in this calculator.

Can simple interest result in a loss?

Simple interest itself always adds to the principal (assuming a positive rate and positive time). However, if inflation exceeds the interest rate, the real purchasing power of the total amount may decrease, even though the nominal amount grows.

What happens if the time period is less than one year?

The formula works with fractional years. For 6 months, use t = 0.5. For 3 months, use t = 0.25. The interest is proportional to the fraction of the year.

Learn More

Simple vs. Compound Interest Explained

The formulas for simple and compound interest, side by side. See how compounding frequency and time change the math with worked examples.