The simple interest formula
Simple interest is charged on the original principal only — it never earns "interest on interest". That makes the calculation a single multiplication:
I = P × R × T ÷ 100 and A = P + I
where P is the principal, R the annual rate in percent, T the time in years (use decimals for months: 6 months = 0.5) and A the total amount at the end.
Worked example
Lend 10,000 at 6% per year for 3 years: I = 10,000 × 6 × 3 ÷ 100 = 1,800, so the total amount is 11,800. Each year earns exactly 600 — the interest is the same every year because it is always computed on the original 10,000. Had the same money compounded monthly instead, it would have grown to about 11,967 — the calculator shows that comparison under the result.
When simple interest applies
Simple interest is common on short-term loans, late-payment penalties, some auto loans and any deposit that pays interest out to you rather than reinvesting it. Bank savings accounts, FDs and credit cards compound instead, so never assume — check the terms. For a borrower, simple interest is cheaper than compound interest at the same nominal rate; for a saver it is worse.
Tips
- Convert time to years before applying the formula: 18 months → 1.5, 90 days → 90 ÷ 365 ≈ 0.247.
- Rearrange to solve for any unknown: R = 100 I ⁄ (P T), T = 100 I ⁄ (P R).
- Comparing a simple-interest offer against a compounding one? Compare total amounts at the end of the term, not the quoted rates.