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Simple interest: principal x rate x time, with no interest on interest. Most savings accounts compound; simple interest appears in some bonds, court awards and short-term lending.
What The Simple Interest Calculator Works Out
- Interest earned: principal x annual rate x years, calculated on the original principal only. GBP 1,000 at 5% for 3 years earns exactly GBP 150, GBP 50 a year, the same every year. Simple interest governs statutory interest on court judgments (8% a year) and late commercial payments, some bonds' coupons, and certain short-term or informal lending.
- Total value: the principal plus the simple interest, which grows in a straight line.
- Compound comparison: what the same money would reach if interest earned interest. GBP 1,000 at 5% compounded yearly for 3 years reaches GBP 1,157.63; over 30 years simple interest earns GBP 1,500 while compounding earns GBP 3,322. Savings accounts and investments compound, which is why AER exists to make their rates comparable, and APR on borrowing reflects compounding plus fees.
- Time unit (advanced): enter the period in months or days instead of years, useful for a short loan or a statutory interest claim on a late invoice. Days are converted at 365 to the year.
- Compounding frequency (advanced): switches the comparison between yearly, quarterly, monthly and daily compounding. More frequent compounding adds a little more; the difference between monthly and daily is usually pennies.
- Interest per year and month (advanced): the fixed annual interest and its monthly and daily equivalents, which is how simple-interest bonds and loans actually pay or charge.
- Tax on the interest (advanced): interest outside an ISA is taxable above the personal savings allowance (GBP 1,000 for basic-rate taxpayers, GBP 500 for higher-rate, nil for additional-rate). Pick your rate to see the after-tax figure.
- Real return after inflation (advanced): the after-tax total deflated by your inflation assumption, minus the principal. If the rate is below inflation the real gain is negative even though the balance has grown.
- Time to double (advanced): at simple interest money doubles in 100 divided by the rate in years (20 years at 5%); compounding follows the rule of 72, roughly 72 divided by the rate (about 14.2 years at 5%). Linear versus exponential is the whole argument for saving early and clearing compounding debts fast.
- Year-by-year table (advanced): the simple and compound totals at the end of each year and the gap between them, which widens every year.
Further reading: MoneyHelper: savings and interest.