Calculate simple interest on any principal amount using the formula I = P × R × T. Enter your principal, interest rate, and time period to see total interest earned and a year-by-year breakdown.
What is simple interest?
Simple interest is the most basic method of calculating interest. It is calculated only on the original principal amount — unlike compound interest, which calculates interest on both the principal and previously earned interest.
Simple Interest Formula:
I = P × R × T
Where:
- I = Interest earned
- P = Principal (original amount)
- R = Annual interest rate (as a decimal)
- T = Time period in years
Example: $10,000 invested at 5% for 3 years:
I = $10,000 × 0.05 × 3 = $1,500
Total value after 3 years = $10,000 + $1,500 = $11,500
Simple interest vs compound interest
The difference between simple and compound interest becomes dramatic over longer time periods:
| Year | Simple Interest (5%) | Compound Interest (5%) | Difference |
|---|---|---|---|
| 1 | $10,500 | $10,500 | $0 |
| 5 | $12,500 | $12,763 | $263 |
| 10 | $15,000 | $16,289 | $1,289 |
| 20 | $20,000 | $26,533 | $6,533 |
| 30 | $25,000 | $43,219 | $18,219 |
Based on $10,000 principal. Compound interest assumes annual compounding.
After 30 years, compound interest produces 73% more than simple interest on the same principal. This is why long-term investments almost always use compound interest.
Where simple interest is used in Canada
Loans and borrowing
- Lines of credit — Interest is typically calculated daily using simple interest on the outstanding balance
- Some car loans — Certain auto financing uses simple interest
- Short-term personal loans — Payday loans and short-term lending
- Treasury bills — Government T-bills are sold at a discount using simple interest principles
Investments
- Some short-term GICs — Certain GIC products calculate interest on a simple basis
- Savings bonds — Canada Savings Bonds (now discontinued) used simple interest
- Demand notes — Short-term corporate borrowing
Canadian mortgages
Canadian mortgages do not use simple interest. By law, Canadian mortgages compound semi-annually (twice per year), which is more favourable to borrowers than the monthly compounding common in the US. Use the Mortgage Calculator for accurate Canadian mortgage calculations.
How to calculate simple interest for different time periods
| Time Period | Formula | Example ($10,000 at 5%) |
|---|---|---|
| 1 year | P × R × 1 | $500 |
| 6 months | P × R × 0.5 | $250 |
| 90 days | P × R × (90/365) | $123.29 |
| 30 days | P × R × (30/365) | $41.10 |
| 1 day | P × R × (1/365) | $1.37 |
Simple interest doubling time
With simple interest, the time to double your money is straightforward:
Doubling Time = 1 ÷ Rate
| Interest Rate | Doubling Time (Simple) | Doubling Time (Compound) |
|---|---|---|
| 3% | 33.3 years | 23.4 years |
| 5% | 20.0 years | 14.2 years |
| 7% | 14.3 years | 10.2 years |
| 10% | 10.0 years | 7.3 years |
Compound interest always doubles your money faster because interest earns additional interest.
When Simple Interest Benefits Borrowers
While compound interest is better for savers and investors, simple interest can work to a borrower’s advantage in several scenarios:
| Scenario | Why Simple Interest is Better for the Borrower |
|---|---|
| Short-term loans (under 1 year) | Less total interest paid compared to compound |
| Lines of credit | Interest charged only on principal owed, calculated daily using simple interest |
| Early repayment | No compounded interest penalties; interest stops accruing immediately when principal is repaid |
| Car loans (some) | Simple interest means extra payments go directly to reducing principal, lowering future interest |
For any loan product, making extra payments or paying early is most beneficial under simple interest because each dollar of principal reduction directly reduces the daily interest charge. With compound interest loans, some of your payment goes toward paying interest on accumulated interest.
If you are comparing loan products, ask your lender whether interest is calculated on a simple or compound basis. Even a small difference in calculation method can add up over a multi-year loan term.
Related calculators
- Compound Interest Calculator — Calculate interest that compounds on itself over time
- GIC Calculator — Estimate returns on Guaranteed Investment Certificates
- Investment Calculator — Project long-term investment growth
- Line of Credit Calculator — Calculate interest on a line of credit
- Personal Loan Calculator — Estimate loan payments and total interest
- Mortgage Calculator — Calculate Canadian mortgage payments with semi-annual compounding
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