Simple interest calculator
Simple interest always pays on the original capital and never on what you have already earned. Here it sits next to compound, which is where the difference shows.
Your figures
Result
- Total interest
- $5,000.00
- Interest each year
- $500.00
- With compound interest
- $16,288.95
- What not reinvesting costs you
- $1,288.95
Year by year, with compound alongside
| Period | Interest so far | With simple interest | With compound interest |
|---|---|---|---|
| Year 1 | $500.00 | $10,500.00 | $10,500.00 |
| Year 2 | $1,000.00 | $11,000.00 | $11,025.00 |
| Year 3 | $1,500.00 | $11,500.00 | $11,576.25 |
| Year 4 | $2,000.00 | $12,000.00 | $12,155.06 |
| Year 5 | $2,500.00 | $12,500.00 | $12,762.82 |
| Year 6 | $3,000.00 | $13,000.00 | $13,400.96 |
What we assume
- Interest is calculated always on the starting capital, never on gains.
- The rate given is annual and assumed constant.
- No tax, fees or inflation are deducted.
- The compound comparison uses annual compounding.
How it is calculated
The formula fits on one line:
interest = capital × rate × years
On £10,000 at 5% for 10 years: 10,000 × 0.05 × 10 = £5,000 of interest. Every year is the same £500, not a penny more.
What separates it from compound
With simple interest, interest earns no interest. It is calculated on the starting capital and taken out, or at least treated as if it were.
Compound reinvests it, so the capital it is calculated on grows every year:
final capital = capital × (1 + rate)^years
In the same example, compound gives £16,288.95 against the £15,000 of simple: £1,288.95 apart. And the gap widens with time, because it is exponential against linear. Over 30 years the same £10,000 gives £25,000 simple and £43,219 compound.
Where you will actually meet it
Almost no savings product pays simple interest: deposits and funds compound. Where it does turn up is in:
- Loans between individuals, by agreement, because it is easier to understand and to split.
- Late-payment interest, usually charged on the unpaid principal.
- Coupon bonds, if you take the coupon and spend it rather than reinvesting.
That last one is the key: a product can pay compound interest on paper and behave like simple in practice, if you withdraw the returns as they arrive.
An example
£10,000 at 5% a year for 10 years earns £5,000 of interest: £500 a year, to a total of £15,000. With compound interest it would be £16,288.95, which is £1,288.95 more for leaving the interest in.
Frequently asked questions
When is simple interest better?
For whoever is paying, always. If you are borrowing, simple interest costs less than compound at the same rate. If you are investing it is the other way round: compound is the one working for you.
What if the term is in months rather than years?
Enter the fraction: six months is 0.5 years and ninety days is about 0.25. The formula is proportional to time, so decimals work fine.
Why does my bank talk about APR if this is simple interest?
Because effective annual rates are always expressed in compound terms, precisely so that products with different payment frequencies can be compared. A simple 5% a year and a 5% APR are not the same thing.
How much does not reinvesting cost, exactly?
It depends on the term, and it grows fast. Over 5 years the gap is about 3% of capital; over 10 years, 13%; over 30 years, 182%. It is why the term matters more than the rate in any long savings plan.
Keep calculating
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- CAGR calculator Two figures and a term give the constant rate that would have taken the first to the second. It is the honest way to compare investments of different lengths.
- ROI calculator ROI is a simple division that gets misused constantly: 50% in six months and 50% in ten years give the same figure. So here it comes annualised too.
Updated on 2026-09-11. Calculations run in your browser; nothing you type is sent to a server.