Work out simple interest from the original principal, the rate, and the term — or flip the formula and solve for the starting amount, how long it takes, or the rate. Simple interest never compounds: every period's interest is calculated on the same starting balance.
Formula
Interest is a percentage of the original principal, applied for each unit of time. With principal P, annual rate r, and term t in years:
I = P × r × t
A = P + I = P × (1 + r × t)
A monthly quoted rate is r = monthlyRate × 12. A term in months is
t = months / 12. Rearranged, the same identity gives the other tabs:
P = A / (1 + r × t)
t = (A / P − 1) / r
r = (A / P − 1) / t
Simple vs. compound interest
| $10,000 at 5% for 5 years | |
|---|---|
| Simple interest | $12,500 ($2,500 of interest) |
| Compounded monthly | about $12,833.59 ($2,833.59 of interest) |
Examples
$20,000 at 3% for 10 years
A $20,000 principal at 3% simple interest for 10 years earns $6,000 of interest, so the end balance is $26,000. Each year adds a flat $600.
What principal grows to $30,000?
To reach $30,000 in 10 years at 3% simple interest you need a starting principal of $23,076.92. The $6,923.08 of interest is 3% of that principal each year.
18 months at 3% per year
The same $20,000 at 3% for 18 months is a year and a half, so interest is $20,000 × 3% × 18 / 12 = $900 and the end balance is $20,900.