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Simple Interest Calculator

Work out the simple interest on a capital sum: the interest is always calculated on the starting amount and never reinvested. Enter the capital, the annual rate and the term to see the interest and the final amount, compared with compound interest.

Future value
€1,500
Interest earned
€500
With compound interest: €1,647 (+€147)

Educational estimate, not financial advice. Returns are not guaranteed.

1

What simple interest is

With simple interest, the interest is always calculated on the starting capital and is not added to it. If you lend €1,000 at 5% for three years, each year earns the same €50: €150 in total. The formula is capital × rate × years.

2

How it differs from compound interest

With compound interest, the interest is added to the capital and earns interest itself, so the base grows every period. Over one year the difference is nil or tiny; over thirty years it is enormous. This calculator shows both results so you can see it with your own numbers.

3

Where it is actually used

Simple interest appears mostly in short-term operations, in default and statutory interest (in Italy statutory interest is simple unless agreed or customary otherwise: article 1283 of the Civil Code), in some private loans and in trade discounts. Most savings and investment products work on compound interest instead, so always check which of the two the contract applies.

Worked example

Example: €10,000 at 4% for 5 years with simple interest yields €2,000 of interest and a final amount of €12,000. With compound interest and annual compounding, the same figures give about €12,167. The difference is small over five years; over thirty years, compound interest beats simple by more than €10,000.

Frequently asked questions

What is the simple interest formula?
Interest = capital × annual rate × number of years. The final amount is the capital plus that interest. There is no compounding, so every year yields exactly the same.
When is simple interest better?
Never for the investor: for a saver, compound interest always yields the same or more. It is better for the payer: if you owe money, interest that does not compound works in your favour. In Italy, interest on interest (anatocismo) is prohibited except in the cases set out in article 1283 of the Civil Code.
Is default interest simple interest?
Usually yes: it is calculated on the amount owed for the period of delay, without compounding, although the applicable rate and rules depend on the type of debt and the contract.

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Author: Thorben Rasmus Idel · Reviewed by: Nahar Geva · Last reviewed: