The simple interest formula
I = P × r × tWhere P is the principal (the starting amount), r is the annual rate as a decimal (6% = 0.06) and t is the time in years. Months are converted as months ÷ 12 and days as days ÷ 365, which is what the time-unit selector above does for you. The final amount is simply A = P + I.
Worked example
Deposit $5,000 at 6% for 3 years: I = 5,000 × 0.06 × 3 = $900 of interest, for a final amount of $5,900. Notice the interest is exactly $300 every year — under simple interest the amount never grows, because interest is only ever charged (or paid) on the original principal.
Simple vs compound interest
Compound interest also earns interest on past interest, so it pulls ahead over time. The same $5,000 at 6% for 3 years, compounded yearly, gives about $5,955 — $55 more. Over 3 years the gap is small; over 30 years it becomes enormous. Run the same numbers in our compound interest calculator to see the difference with your own figures. Most real bank accounts and credit cards compound — simple interest appears mainly in textbooks, some short-term loans, and car loans in a few markets, which is exactly why knowing the formula matters when a lender quotes it.
Frequently asked questions
Where is simple interest actually used?
In school maths everywhere, and in real life for some short-term and auto loans, certain government bonds' coupon calculations, and late-payment interest specified as a flat rate. Most savings accounts use compound interest instead.
How do I use months or days in the formula?
Convert the time to years first: months ÷ 12, days ÷ 365. Six months at 6% on $5,000 is 5,000 × 0.06 × 0.5 = $150. The unit selector above does this conversion automatically.
What rate do I enter — 6 or 0.06?
Enter 6 (the percentage). The calculator divides by 100 internally, as the worked example shows.
Does simple interest favour the borrower or the lender?
Compared with compound interest at the same rate, simple interest costs a borrower less and pays a saver less — because the balance the interest is calculated on never changes.