Simple Interest
Last verified: 2026-07
Comparison
Year 15
Year 528
Year 1063
What Is Simple Interest?
Simple interest is a quick and easy method of calculating the interest charge on a loan or investment. It is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments.
Formula
[ SI = P \times r \times t ]
- P = principal amount
- r = annual interest rate (decimal)
- t = time (in years)
Key Difference
Unlike compound interest, simple interest does not add accumulated interest back to the principal. This makes it far less powerful for long‑term investing.
Real‑Life Example
If you borrow $1,000 at 5% simple interest for 3 years, you’ll pay $150 in interest. With compound interest, you’d pay slightly more because interest would be calculated on the growing balance.
Last verified: July 2026