Simple Interest Calculator
Calculate returns and costs in a linear and simple way
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What is Simple Interest?
Simple interest is calculated only on the initial amount (principal), without considering accumulated interest from previous periods. Growth is linear and constant over time.
It is the simplest model of interest calculation and is often used in short-term loans, financing, and some specific investments.
How Does Simple Interest Work?
With simple interest, the interest amount is always the same in each period, as it is always calculated on the initial capital:
Example: $1,000 at 1% per month for 3 months
Month 1: Interest = $1,000 × 1% = $10 → Balance: $1,010
Month 2: Interest = $1,000 × 1% = $10 → Balance: $1,020
Month 3: Interest = $1,000 × 1% = $10 → Balance: $1,030
Note that the interest is always $10, calculated on the initial $1,000.
Difference between Simple and Compound Interest
Simple Interest:
- •Interest calculated only on initial capital
- •Linear growth
- •Lower final amount in the long term
- •Common in short-term loans
Compound Interest:
- •Interest on interest ("compound interest")
- •Exponential growth
- •Higher final amount in the long term
- •Common in investments
Comparative Example:
Capital: $1,000 | Rate: 10% per year | Time: 5 years
• Simple Interest: $1,500 ($500 in interest)
• Compound Interest: $1,610.51 ($610.51 in interest)
Difference of $110.51 favors compound interest!
How to Use the Calculator
- 1
Enter the principal amount - The initial capital that will be borrowed or invested.
- 2
Configure the interest rate:
- Choose the period: annual, monthly or daily
- Enter the rate (e.g., 5% per year)
- The calculator will adjust automatically
- 3
Define the total period:
- Choose: years, months or days
- Enter the total time
- No need to convert, we do it automatically
- 4
Click Calculate to see the results!
Practical Examples
Example 1: Personal Loan
Capital: $5,000 | Rate: 2% per month | Period: 12 months
Result: Interest of $1,200, total to pay: $6,200
Example 2: CDB Investment
Capital: $10,000 | Rate: 10% per year | Period: 2 years
Result: Interest of $2,000, final amount: $12,000
Example 3: Overdraft
Capital: $1,000 | Rate: 8% per month | Period: 3 months
Result: Interest of $240, total debt: $1,240
When to Use Simple Interest?
Common Situations:
Short-term loans (up to 12 months)
Overdraft
Some specific financing
Quick approximate calculations
Short-term commercial contracts
Important Tips
Check the type of interest: Before signing a contract, confirm whether it's simple or compound interest.
Pay attention to the period: Make sure rate and period are in the same unit (both monthly or both annual).
For investments: Compound interest is always more advantageous in the long term.
For loans: Simple interest is more advantageous for the borrower in the long term (but rare).
Use for estimates: Simple interest is great for quick mental calculations.
Frequently Asked Questions
What's the main difference between simple and compound interest?
Simple interest is calculated only on the initial capital. Compound interest is calculated on the capital plus accumulated interest, generating exponential growth.
Do banks use simple interest?
Rarely. Most banks use compound interest for investments and loans. Simple interest is more common in specific commercial contracts.
How do I know if a loan uses simple interest?
Read the contract carefully. It should be explicitly mentioned. When in doubt, ask the bank or financial institution.
Can I convert simple interest to compound?
They are different methodologies. You can compare results using both calculators on our site.
Why does simple interest grow less?
Because in each period, interest is always calculated on the fixed initial amount, not on the accumulated balance.
Is simple or compound interest better for borrowers?
Simple interest is better for the borrower in the long term, but it's rare. In practice, you'll likely find compound interest.
How do I calculate simple interest mentally?
Multiply the amount by the percentage and by time. E.g., $1,000 × 10% × 2 years = $200 in interest.
Does the calculator work for any currency?
Yes! The calculations are the same. Just adjust the currency symbol according to your region.
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