Simple interest is a straightforward method of calculating the interest charge on a loan or earned on an investment. It's calculated only on the initial principal amount. Unlike compound interest, simple interest does not account for interest earned on previously accumulated interest. This makes it easier to understand and calculate, but often less beneficial for investors over the long term compared to compounding.
How Simple Interest is Calculated
The formula for simple interest is:
Interest (I) = Principal (P) × Rate (R) × Time (T)
Principal (P): This is the initial amount of money borrowed or invested. In our calculator, this is the 'Principal Amount' you enter.
Annual Interest Rate (R): This is the yearly rate at which interest is charged or earned, expressed as a decimal. In our calculator, you enter this as a percentage, and the script converts it to a decimal (e.g., 5% becomes 0.05).
Time Period (T): This is the duration for which the money is borrowed or invested, measured in years. In our calculator, this is the 'Time Period (Years)' you enter.
The calculator above uses this formula. For example, if you invest $10,000 at an annual interest rate of 5% for 3 years, the simple interest earned would be:
I = $10,000 × 0.05 × 3 = $1,500
The total amount you would have after 3 years would be the principal plus the interest: $10,000 + $1,500 = $11,500.
When is Simple Interest Used?
Simple interest is commonly used for:
Short-term loans
Calculating interest on savings accounts for short periods
Some personal loans
As a basic introduction to interest concepts
While simple interest is easy to grasp, it's important to understand its limitations. For investments that are held for longer periods, compound interest generally yields significantly higher returns because it allows your earnings to grow on themselves. When comparing financial products, always check whether interest is simple or compound and for what period.
function calculateSimpleInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value);
var timePeriod = parseFloat(document.getElementById("timePeriod").value);
var resultValueElement = document.getElementById("result-value");
if (isNaN(principal) || isNaN(annualRate) || isNaN(timePeriod) || principal < 0 || annualRate < 0 || timePeriod < 0) {
resultValueElement.innerHTML = "Invalid input. Please enter positive numbers.";
return;
}
var rateAsDecimal = annualRate / 100;
var simpleInterest = principal * rateAsDecimal * timePeriod;
resultValueElement.innerHTML = "$" + simpleInterest.toFixed(2);
}