Quick answer: Simple interest is principal × rate × time: 10,000 at 5% for 3 years earns 10,000 × 0.05 × 3 = 1,500, for a total of 11,500.
How it's calculated
I = P × r × t, where P is the principal, r the annual rate as a decimal and t the time in years. The total is A = P + I. For months, t = months ÷ 12; for days, t = days ÷ 365.
Because interest is not added to the balance, it grows in a straight line: the same amount every year. Compound interest grows faster over time; the last tile shows the difference, and the compound interest calculator covers deposits too.
Simple interest is used for some short-term loans, bonds' coupon payments and late-payment charges. Flat-rate personal and car finance in the Gulf is quoted the same way, which makes its real APR higher than the flat rate.
Worked examples
- 10,000 at 5% for 3 years: 10,000 × 0.05 × 3 = 1,500 → 11,500
- 50,000 at 4% for 90 days: 50,000 × 0.04 × 90/365 = 493.15
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is paid only on the principal. Compound interest is also paid on interest already added, so it grows faster the longer the term.
Why does a flat rate cost more than it looks?
A flat rate charges interest on the full original amount for the whole term even though you repay it month by month. The equivalent reducing-balance APR is roughly twice the flat rate.
Which day count does this use?
Actual days ÷ 365. Some banks use 360 days, which gives slightly more interest.
How do I work out interest for 90 days?
Use days as the time unit. 10,000 at 5% for 90 days is 10,000 × 0.05 × 90 ÷ 365 = 123.29.
Where is simple interest used?
In short-term loans, some deposits and bonds, and in flat-rate loan quotes.
How do I find the rate or time instead?
Rearrange the formula: rate = interest ÷ (principal × time), and time = interest ÷ (principal × rate).