Interest = P · r · t — the classic non-compounding formula.
Simple interest: I = P · r · t. Compound (annual): I = P · ((1+r)^t − 1). The gap widens with rate × time — this is why credit cards use compound, and short-term notes often use simple.
Simple interest is the textbook starting point for finance: you lend P at rate r for time t, and the interest is just P · r · t. No compounding, no reinvestment of interest, no roll-up. It applies to short-term commercial loans, certain bonds (where coupons are paid out, not reinvested), promissory notes between individuals, and some legal-judgment interest calculations. It is not what your savings account or your credit card uses — those compound. Calculating simple interest by hand is trivial; what users actually need is (a) a way to mix unit choices (rate is annual but term is in months or days) and (b) a side-by-side compound comparison so they can see the gap they're leaving on the table by not compounding.
I = P · r · t, where r is the per-period rate and t is the matching number of periods. The calc enters the rate as an annual percentage and the time in either days, months, or years, then converts to years internally (days ÷ 365, months ÷ 12). Total at maturity: T = P + I = P · (1 + r · t). For comparison, compound (annual): T_c = P · (1 + r)^t and I_c = T_c − P. The gap I_c − I grows quadratically with rt: at small rt the gap is ≈ P · (rt)² / 2 (Taylor expansion), and at large rt it explodes — that's why credit card balances spiral so fast.
Enter the principal, the annual rate, the time, and pick the time unit (days / months / years). The calc returns: simple interest, total at maturity, the principal echo for sanity, the compound-equivalent interest for the same inputs, and the gap between the two. The gap is the headline diagnostic — it answers "is this product simple or compound, and how much does it matter?"
Short-term loan: P = 5 000 €, annual rate 6 %, term 9 months. - t = 9 / 12 = 0.75 years. - I = 5 000 × 0.06 × 0.75 = 225 €. - T = 5 225 €. - Compound (annual): T_c = 5 000 × 1.06^0.75 ≈ 5 224 €. I_c ≈ 224 €. Gap: −1 €. At 9 months and 6 %, simple and compound are essentially identical — the gap matters at higher rates × longer times.
A second example: 25 000 € at 4.5 % over 5 years. - I = 25 000 × 0.045 × 5 = 5 625 €. - Compound: T_c = 25 000 × 1.045^5 ≈ 31 154 €. I_c ≈ 6 154 €. Gap: 529 €. At 5 years × 4.5 % the compound advantage starts to be meaningful.
Day-count conventions. The calc uses 365 days per year ("Actual/365"). Some banking products use 360 days ("Actual/360", common in US money-market and EU interbank loans), which inflates simple interest by about 1.4 % at the same nominal rate. For commercial paper, treasury bills, and some loans, you may need to multiply the result by 365/360. The calc deliberately uses Actual/365 because it matches consumer expectations.
Annual vs periodic rate. The rate input is annual. If your contract quotes a monthly rate (rare but possible — a monthly rate of 1.5 % is equivalent to 18 % APR, common on US payday loans), multiply by 12 before entering. Otherwise the result is 12 × too small.
Simple does not mean lower interest. Simple interest with the same APR and time produces lower total interest than compound. But simple-interest products often advertise a higher headline APR precisely because they compound less — the bank is comparing apples to oranges. For a true comparison, look at the APY (effective annual yield) which always normalizes to compound-equivalent.
Negative time. Entering a negative time produces a negative interest. The calc doesn't reject it but the result has no financial meaning — it's the implied refund on a hypothetical pre-paid loan, useful only as a sanity-check.
Inflation. Simple-interest products are particularly bad at preserving purchasing power because the interest doesn't compound. A 5 % simple-interest 30-year bond at 3 % inflation loses real value steadily; the same nominal rate compounded would just barely keep up.