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## Simple interest calculator

To calculate the interest on an initial principal of $5,000 earning 5.5% over 8 years, we use following simple interest formula:

**Simple interest = Principal x Interest rate x Time**

Where:

**Principal**= $5,000**Interest rate**= 5.5%**Time**= 8 years

Simple interest = $5,000 x 5.5% x 8 years

Which is:

To find the total value of your investment at the end of 8 years, we add the principal and the interest.

**Total investment = Principal + Interest**

Where:

**Principal**= $5,000**Interest**= $2,200

Total investment = $5,000 + $2,200

Which is:

## How does this simple interest calculator work?

A simple interest calculation applies the interest rate only to the principal amount, not on any earned interest.

The principal amount is the starting amount you have at the beginning. This could the the amount of money you want to invest, borrow, or loan to someone else.

Our simple interest calculator uses the following formula for simple interest to calculate the interest earned.

This simple interest formula calculates the total amount of interest earned.

The total amount that you receive is:

or

## Simple interest vs. compound interest

Simple interest is different from compound interest.

In a **simple interest** calculation, the **interest rate is only applied to the original principal amount**. The interest that you earn each period is not reinvested.

In a **compound interest** calculation, the **interest rate is applied to the original principal amount as well as all earned interest from the previous periods**. The earned interest amounts are reinvested at the same interest rate.

Let’s take an example to understand the difference between simple interest and compound interest.