Simple Interest Calculator
This is the most basic form of payment on an investment. Interest is paid on a fixed principal amount; meaning the interest earned is not added to the principal for the following interest payment. For example, if you have a $1,000 investment and are paid 9% a year, then you would earn $90 each year. Even if you left the $90 in the investment, bringing your balance to $1,090, you would continue to earn $90 on the initial $1,000 you invested. So the first year your investment would grow to $1,090, the second year $1,180 and so on.
Simple interest is rarely used in banking or investing. One place you might recognize it, however, is in an interest only mortgage. In this type of loan the principal amount does not change, and the interest paid on the note is constant.
Try looking at both the compound and simple interest calculators on our page to compare which will be a better investment long term. The answer is easy. Compound interest will always pay better in the long run, but try both calculators to see the difference it can really make.
The common formula for calculating simple interest is I=P*R*T. You can calculate Interest (I) by multiplying the Principal (P) times the Rate (R) by the Time (T). Understanding this basic formula for simple interest will give you a better understanding of more complex types of interest and investments.