Simple interest calculator
Most saving and borrowing compounds, so simple interest sounds like a textbook curiosity. It is not: car loans in many markets, some personal loans, short-term bridging finance and most bond coupon payments are simple. The distinction matters because a headline rate quoted simply is a different product from the same rate quoted compounding, and over five years at 5% the gap is nearly a quarter of the interest.
Simple interest is principal × rate × time. Ten thousand at 5% for five years earns 2,500, for a total of 12,500. The same money compounding annually would earn 2,762: the difference is interest on interest.
How to calculate simple interest
The gap between simple and compound interest grows with both time and rate, and it grows non-linearly. Over one year there is no difference at all. Over five years at 5% it is about 10% of the interest; over thirty years at 8% the compound figure is more than twice the simple one. That asymmetry is why the distinction is trivial for a short car loan and decisive for a pension, and why any quoted rate should always come with a compounding frequency attached.
Questions
I = P × r × t; principal times annual rate times time in years.
Simple interest is only ever charged on the original principal. Compound interest is charged on the principal plus the interest already added.
Car loans in some markets, short-term personal loans, bridging finance, and most bond coupon payments.
Enter years as a decimal; six months is 0.5, eighteen months is 1.5.
Yes, at the same nominal rate. It is worse for a saver, for exactly the same reason.