💵 Simple Interest Calculator
A simple interest calculator showing the 365- and 360-day conventions side by side — the difference lenders rely on and most calculators ignore.
What Simple Interest Calculator Does
Simple interest is the version of interest that does not feed itself. It is charged on the original principal for the whole term, so the amount earned each year never changes: $10,000 at 5.5% earns $550 in year one, $550 in year ten, and $550 in year thirty. The formula is I = P × r × t and there is nothing else to it.
That makes it a straight line where compound interest is a curve, and the gap between them is the entire argument for starting to save early. Over one year the two are identical. Over ten years on the same $10,000 at 5.5%, simple interest gives $5,500 and annual compounding gives $7,081. Over thirty, $16,500 against $39,840.
The detail that actually costs people money is not in the formula, though — it is in what counts as a year. Many lenders compute daily interest by dividing the annual rate by 360 rather than 365, a convention inherited from hand bookkeeping when a 360-day year divided neatly into twelve equal months. Dividing by the smaller number makes each day worth more, so a loan held for a full 365 days on a 360-day basis collects about 1.39% more interest than the quoted rate suggests.
None of the pages ranking for this term raises that, so both bases are shown here for any term entered in days, along with the per diem figure that mortgage payoff quotes and closing statements are built from.
How to Use Simple Interest Calculator
- Enter the principal, the annual rate and the term
- Choose whether the term is in years, months or days
- Read the interest, the total repayable and the per diem figure
- For day-based terms, compare the 365 and 360-day results — your agreement specifies which applies
Formula Used by Simple Interest Calculator
The formula
I = P × r × t and A = P + I
- P
- Principal — the original amount, which never changes
- r
- Annual rate as a decimal, so 5.5% is 0.055
- t
- Time in years
Worked example
$10,000 at 5.5% for 3 years
- I = 10,000 × 0.055 × 3
- I = 1,650
Result: $1,650 of interest, $11,650 repayable in total
Converting the term
months ÷ 12 · days ÷ 365 (or ÷ 360)
- Actual/365
- The straightforward convention, and the default here
- Actual/360
- Common in US commercial lending — makes each day worth more
Worked example
$10,000 at 5.5% for 90 days
- 365 basis: 10,000 × 0.055 × 90/365 = 135.62
- 360 basis: 10,000 × 0.055 × 90/360 = 137.50
Result: $1.88 more on the 360 basis — small here, and it scales with the principal
Per diem interest
per diem = P × r ÷ days in year
- Use
- Mortgage closing costs, payoff quotes, late-payment charges
- Why it varies
- The day-count basis changes it directly
Worked example
$10,000 at 5.5%
- 365 basis: 10,000 × 0.055 ÷ 365 = 1.5068
- 360 basis: 10,000 × 0.055 ÷ 360 = 1.5278
Result: $1.51 or $1.53 a day — which is why a payoff figure moves with the settlement date
Against compound interest
simple: A = P(1 + rt) · compound: A = P(1 + r)ᵗ
- The difference
- Multiplication against exponentiation
- Over one period
- They are identical; the gap only opens with time
Worked example
$10,000 at 5.5% for 10 years
- Simple: 10,000 × (1 + 0.055 × 10) = 15,500
- Compound: 10,000 × 1.055¹⁰ = 17,081
Result: $1,581 apart after a decade, and $23,340 apart after three
Simple against compound on $10,000 at 5.5%
Identical after one year, then steadily divergent. Simple interest adds the same $550 every year; compound interest adds a growing amount.
| Years | Simple interest | Compound (annual) | Difference |
|---|---|---|---|
| 1 | $550 | $550 | $0 |
| 3 | $1,650 | $1,742 | $92 |
| 5 | $2,750 | $3,070 | $320 |
| 10 | $5,500 | $7,081 | $1,581 |
| 20 | $11,000 | $19,178 | $8,178 |
| 30 | $16,500 | $39,840 | $23,340 |
What the day-count basis costs
$100,000 at 6%, held for the number of days shown. The 360-day basis charges more because dividing by a smaller number makes each day worth more.
| Days held | Actual/365 | Actual/360 | Extra on 360 |
|---|---|---|---|
| 30 | $493.15 | $500.00 | $6.85 |
| 90 | $1,479.45 | $1,500.00 | $20.55 |
| 180 | $2,958.90 | $3,000.00 | $41.10 |
| 365 | $6,000.00 | $6,083.33 | $83.33 |
Interest on common amounts
Simple interest for one year at each rate. Multiply by the number of years for any longer term — that is the whole point of simple interest.
| Principal | 3% | 5% | 7% | 10% |
|---|---|---|---|---|
| $1,000 | $30 | $50 | $70 | $100 |
| $5,000 | $150 | $250 | $350 | $500 |
| $10,000 | $300 | $500 | $700 | $1,000 |
| $25,000 | $750 | $1,250 | $1,750 | $2,500 |
| $50,000 | $1,500 | $2,500 | $3,500 | $5,000 |
How to Read Your Result
The 360-day year is not a rounding error
It is a deliberate convention with a measurable cost. Dividing an annual rate by 360 instead of 365 makes each day 1.39% more expensive, and a loan actually held for a full year on that basis collects 365/360 of the stated rate — an effective 6.083% on a quoted 6%. It is entirely legal and disclosed in the agreement, and it is easy to miss because the headline rate looks unchanged. On a large commercial balance it is real money, which is why the convention appears in the loan documents at all.
Per diem is why your payoff quote has an expiry date
A loan payoff figure is only valid for a stated date, because interest accrues every day until the money actually arrives. The per diem figure is what a servicer uses to extend the quote: settle three days later and you owe three more days of interest. The same arithmetic drives the prepaid interest line on a mortgage closing statement — closing on the 28th of a month costs less prepaid interest than closing on the 2nd, which is a genuine and often overlooked lever on closing costs.
Over short terms the two kinds barely differ
A year or less, and simple and compound interest are close enough that the choice rarely matters — at 5.5% for one year they are identical, and for three years they are $92 apart on $10,000. The difference is a function of time, not of rate. This is why short-term instruments are usually quoted simply: Treasury bills, commercial paper, short promissory notes. It is also why arguing about compounding frequency on a six-month deposit is wasted effort.
Simple interest can still be the expensive option
It is tempting to treat "simple" as favorable to the borrower, and mechanically it is — you never pay interest on interest. But the mechanism is not the price. A simple-interest loan at 14% costs far more than a monthly-compounding one at 8%, and "flat rate" consumer loans, which charge simple interest on the original principal even as you repay it, produce an effective rate close to double the quoted one. Compare the total amount repayable, or the APR, and treat the compounding method as a detail of how that total was reached.
Flat-rate lending is the trap worth naming
A flat-rate loan applies simple interest to the full original principal for the entire term, regardless of how much you have already repaid. Borrow $10,000 over three years at a "5% flat rate" and you pay $1,500 of interest even though your average outstanding balance is barely half the original. The effective annual rate is close to 9%. This is why regulators in most markets require an APR alongside any quoted rate — the APR accounts for the declining balance and the flat rate does not.
Where simple interest genuinely applies
Anywhere interest is paid out rather than added to the balance. A certificate of deposit that pays interest to a current account is simple; one that reinvests is compound. Treasury bills are discount instruments and effectively simple. Most late-payment and statutory interest is simple. Many car loans use simple interest computed daily on the outstanding balance, which is why paying a car loan early genuinely reduces the interest, unlike a flat-rate arrangement.
Limitations & Accuracy Notes
- This models simple interest only. If interest is added to the balance and then earns interest itself, you need the compound interest calculator instead.
- Fees, arrangement charges and insurance are excluded. They frequently exceed the interest on short-term borrowing and are what the APR exists to capture.
- The day-count basis is a term of your agreement. Actual/365 and Actual/360 are shown for comparison; 30/360, which treats every month as 30 days, is a third convention used in some bond markets and is not modeled.
- A constant rate for the whole term is assumed. Variable-rate arrangements need recalculating whenever the rate moves.
- Tax is not considered. Interest received is generally taxable in the year it arises, and interest paid is only sometimes deductible.
- Nothing here is financial advice, and the figures are a calculation rather than an offer. Only the lender's own disclosure is binding.
Frequently Asked Questions
What is the simple interest formula?
How is simple interest different from compound interest?
Why do some lenders use 360 days instead of 365?
What is per diem interest?
Where is simple interest actually used?
Is simple interest better for a borrower?
References & Further Reading
- Consumer Financial Protection Bureau — What is an APR? — The US regulator on why the annual percentage rate rather than a quoted rate is the comparable figure, which is the basis of the flat-rate point above
- Federal Reserve — Selected Interest Rates (H.15) — Current US benchmark rates, for grounding the rate input in something real
- Calculator.net — Simple Interest Calculator — A leading competing tool for this term, covering the I = PRT calculation this page reproduces