Finance & Business
Simple Interest Calculator
Calculate the simple interest on your investments or loans using principal amount, interest rate, and time period.
Enter values to calculate simple interest
Related to Simple Interest Calculator
The Simple Interest Calculator uses the fundamental formula: I = P × R × T, where: I is the interest amount, P is the principal (initial investment or loan amount), R is the annual interest rate (in percentage), and T is the time period in years. This straightforward calculation method assumes that interest is not compounded and is based solely on the initial principal amount.
The Formula Explained
For example, if you invest £1,000 (P) at a 5% annual interest rate (R) for 3 years (T), the simple interest would be: £1,000 × 5/100 × 3 = £150. The total amount after 3 years would be the principal plus interest: £1,000 + £150 = £1,150.
Our calculator also provides a visual representation through a graph that shows how your money grows over time. The graph plots the total amount (principal + accumulated interest) against the time period, creating a straight line since simple interest grows linearly.
The calculator provides two main results: the interest earned and the total amount. The interest earned represents the additional money generated from your investment or the cost of borrowing if it's a loan. The total amount combines your initial principal with the earned interest.
Understanding the Graph
The graph shows a linear progression of your money over time. Unlike compound interest, which shows exponential growth, simple interest creates a straight line because the interest is calculated only on the initial principal amount. Each point on the line represents the total amount at that specific year.
When using this calculator for loans, the interest amount represents the total cost of borrowing, while for investments, it shows your potential earnings. Remember that most savings accounts and investments typically use compound interest rather than simple interest, which would result in higher returns over time.
1. What is simple interest?
Simple interest is a basic method of calculating interest where the interest amount is based solely on the initial principal amount. Unlike compound interest, it doesn't take into account previously earned interest, making it easier to calculate but potentially less profitable for long-term investments.
2. When is simple interest commonly used?
Simple interest is often used for short-term loans, basic savings accounts, and certain types of bonds. It's also commonly used in car loans, some mortgages for interest calculations between payment dates, and in legal judgments for calculating interest on monetary awards.
3. How does simple interest differ from compound interest?
While simple interest is calculated only on the principal amount, compound interest is calculated on both the principal and the accumulated interest from previous periods. This means that compound interest will generate more money over time as it's essentially "interest on interest."
4. Why does the graph show a straight line?
The graph shows a straight line because simple interest grows linearly over time. Since interest is calculated only on the principal amount and not on accumulated interest, the growth rate remains constant. This is different from compound interest, which would show an upward curving line due to exponential growth.
5. What is the scientific source for this calculator?
This calculator is based on the fundamental mathematical principle of simple interest calculation, which has been a standard in financial mathematics for centuries. The formula I = P × R × T is derived from basic algebraic principles and is documented in numerous financial textbooks and academic sources, including "Mathematics of Finance" by Zima and Brown (2005) and "Financial Mathematics: A Comprehensive Treatment" by Grippo and Longo (2015). The formula's simplicity and reliability make it a cornerstone of basic financial calculations, recognized by financial institutions worldwide and taught in standard mathematics and finance curricula.