Investment
Simple interest
Multiply principal by the annual decimal rate and by time in years. The units of r and t must agree: if r is annual, t is in years; convert months or days into fractions of a year.
The Formula
I = P x r x t
Multiply principal by the annual decimal rate and by time in years. The units of r and t must agree: if r is annual, t is in years; convert months or days into fractions of a year.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| P | Principal | currency | The starting amount borrowed or deposited. Assumes no additions or withdrawals during the term. |
| r | Annual interest rate as a decimal | decimal | Divide the quoted percentage by 100. A 6% rate is 0.06, never 6. |
| t | Time in years | years | Whole years, or a fraction: months / 12, or days / 365 (or / 360 under the actual/360 convention). |
| I | Interest amount | currency | Total interest over the whole term, not per year. |
What Each Symbol Means
Pcurrency
Principal
The starting amount borrowed or deposited. Assumes no additions or withdrawals during the term.
rdecimal
Annual interest rate as a decimal
Divide the quoted percentage by 100. A 6% rate is 0.06, never 6.
tyears
Time in years
Whole years, or a fraction: months / 12, or days / 365 (or / 360 under the actual/360 convention).
Icurrency
Interest amount
Total interest over the whole term, not per year.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate simple interest page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Simple Interest, filed under Finance. Every number the guide produces comes from substituting into this one line.