How to Calculate Simple Interest
Enter an amount, a rate and a time period and the calculator does the sum for you, showing every step of the working. Scroll down for the formula and worked examples you can follow by hand.
Estimate only. Simple interest is charged on the original amount for the whole period, which isn't how most bank loans and savings accounts work. This calculator doesn't include fees or tax, so check the details with your lender or provider.
Interest schedule
| Year | Money added | Interest | Total interest | Balance |
|---|
Simple interest in plain English
Simple interest is interest worked out on the original amount only. If you lend or save $10,000 at 6% a year, you earn the same $600 every year, no matter how long the money stays put. The interest you've already earned doesn't earn anything itself, which is the one thing that separates it from compound interest.
That makes it the easiest kind of interest to calculate, and a good place to start if you're learning how interest works.
The simple interest formula
| Letter | What it means | How to enter it |
|---|---|---|
| P | Principal, the amount borrowed or saved | In dollars, e.g. 10,000 |
| r | Interest rate | As a decimal per year, e.g. 6% = 0.06 |
| t | Time | In years, e.g. 18 months = 1.5 |
How to calculate simple interest, step by step
- Write down the principal. This is the starting amount.
- Turn the rate into a decimal. Divide the percentage by 100. So 6% becomes 0.06.
- Turn the time into years. Divide months by 12, or days by 365. Nine months is 0.75 years, and 90 days is about 0.2466 years.
- Multiply the three numbers. P × r × t gives you the interest.
- Add the interest to the principal if you want the final amount.
Example 1: years. $10,000 at 6% a year for 3 years.
I = 10,000 × 0.06 × 3 = $1,800. The final amount is $11,800.
Example 2: months. $9,000 at 5.5% a year for 18 months.
18 months is 1.5 years, so I = 9,000 × 0.055 × 1.5 = $742.50. The final amount is $9,742.50.
Example 3: days. $20,000 at 6.5% a year for 90 days.
90 days is 90 ÷ 365 of a year, so I = 20,000 × 0.065 × (90 ÷ 365) = $320.55. The final amount is $20,320.55.
Example 4: a monthly rate. $4,000 at 1.5% a month for 6 months.
When the rate is monthly, use months for the time. I = 4,000 × 0.015 × 6 = $360. That's the same as an annual rate of 18% over half a year.
You can check each of these in the calculator above. Pick "per month" in the rate drop-down for Example 4, and use the "Weeks" or "Days" boxes for Example 3. The working underneath the results shows each step.
How to find the principal, rate or time
The formula can be rearranged if the number you're missing isn't the interest.
| To find | Use | Example |
|---|---|---|
| Principal | P = I ÷ (r × t) | $1,200 interest at 5% over 4 years: 1,200 ÷ (0.05 × 4) = $6,000 |
| Rate | r = I ÷ (P × t) | $540 on $6,000 over 2 years: 540 ÷ (6,000 × 2) = 4.5% |
| Time | t = I ÷ (P × r) | $900 on $7,500 at 4%: 900 ÷ (7,500 × 0.04) = 3 years |
Simple vs compound interest
With simple interest your growth is a straight line. With compound interest, each period's interest is added to the balance, so the next period earns on a bigger number. Here's $10,000 at 6% a year, with compound interest added yearly:
| Time | Simple interest | Compound interest | Difference |
|---|---|---|---|
| 5 years | $13,000 | about $13,382 | about $382 |
| 10 years | $16,000 | about $17,908 | about $1,908 |
| 20 years | $22,000 | about $32,071 | about $10,071 |
They're identical for the first year and drift apart after that. If you're saving or investing over many years, our compound interest calculator shows the effect in detail, and the interest calculator adds tax and inflation.
Where simple interest is used in Australia
Most Australian home loans, car loans and personal loans don't use simple interest on the original amount. Interest is generally charged on the outstanding balance, often calculated daily, so it falls as you repay. Savings accounts normally add interest to your balance, which means they compound.
Simple interest still turns up in a few places. Private loans between family and friends often use it because it's easy to agree on. Some short-term arrangements and some term deposits pay interest at the end or as regular payouts without compounding, which works like simple interest over the term. If a lender ever quotes a "flat" rate on a loan, be careful: it's calculated on the original amount even as you pay it down, so the true cost is higher than the number suggests. Ask for the comparison rate and compare it with other loans. Our car loan calculator and mortgage calculator show how interest on a reducing balance works.
Common mistakes to avoid
Using the percentage instead of the decimal. 6% must go in as 0.06, not 6. Mixing up time units. If the rate is per year, the time has to be in years. Forgetting whether the rate is monthly. A 1% monthly rate is 12% a year. Stopping at the interest. If you want the total you'll owe or receive, add it to the principal. Ignoring the day count. Lenders usually count the actual days over a 365-day year, so a short-term figure can differ by a few cents from a rounded calculation.
Frequently asked questions
How do you calculate simple interest?
Multiply the principal by the interest rate (as a decimal) and by the time in years. For $10,000 at 6% for 3 years, that's 10,000 × 0.06 × 3 = $1,800.
Is simple interest better for borrowers or savers?
For a borrower, simple interest is usually the cheaper kind, because interest never builds on interest. For a saver it's the other way round, since compound interest earns more over time. In the first year the two are identical.
How do I calculate simple interest for months or days?
Convert the time to years first. Divide the number of months by 12, or the number of days by 365, and use that as t.
How do I calculate simple interest if the rate is monthly?
Either multiply the monthly rate by 12 to get a yearly rate and use years for the time, or keep the monthly rate and use months for the time. Both give the same answer.
Which grows faster, simple or compound interest?
Compound interest. Both earn the same in year one, but after that compounding earns interest on the interest already added, so the gap widens every year. Simple interest stays flat.
Do Australian banks use simple interest?
Loans generally charge interest on the outstanding balance, usually calculated daily, rather than flat simple interest on the original amount. Savings accounts normally add interest to the balance, so they compound. Check your product's terms for the exact method.
Can I use this for a private loan to a friend or family member?
Yes, it's well suited to that. Agree on the amount, rate and dates in writing, and use the calculator's start and end dates to work out the interest for the exact period. For anything large, it's worth getting legal or financial advice.
Is interest I earn taxable in Australia?
Interest you earn is generally assessable income and taxed at your marginal rate. This calculator doesn't deduct tax, so check with the ATO or a registered tax agent.
This calculator and guide provide general information only and aren't financial, credit, tax or legal advice. They don't consider your personal circumstances, and the results are estimates. Speak with a licensed financial adviser, registered tax agent or solicitor before making a decision, and check the terms of any loan or investment with your lender or provider.
More tools: investment calculator and savings calculator.