A worked example
A $10,000 principal at 5% for 3 years earns exactly $1,500 in interest — principal × rate × time, with nothing compounding along the way — for a total of $11,500.
Frequently asked questions
Where is simple interest actually used?
Some short-term loans, certain bonds, and a handful of car loans and personal loans use simple interest. Most mortgages, credit cards and savings accounts use compound interest instead, which grows faster over time.
Why doesn't the rate matter as much for short time periods?
Simple and compound interest produce nearly identical results over very short periods, since there's little time for compounding to take effect. The gap widens the longer the money is borrowed or invested.
This calculator provides estimates for general informational purposes only and is not financial advice.