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Simple interest most commonly applies to savings that aren’t invested in the stock market.
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A simple interest calculator can help figure out how much money your savings will earn over time.
Simple interest is the interest applied only to the original amount of money deposited.
You can increase your savings by making regular, additional contributions to your account.
Simple interest is exactly what it sounds like: simple.
You can use a simple interest calculator to figure out how much your money will earn if you choose to save it in accounts that typically aren’t invested in the stock market, like CDs, bonds, interest checking, and savings accounts — even high-yield.
Accounts with this structure earn you monthly interest in exchange for making your money available for the bank to lend out. Simple interest is interest earned only on the initial amount invested, also known as the principal balance.
How to use a savings calculator
To use a simple interest savings calculator, you’ll need a few pieces of information:
Your starting amount, which is how much you have in your account or will put in it once opened. This might also be called your principal balance.
The interest rate, which may also be called your rate of return or your APY (annual percentage yield). This is how much interest your principal balance will earn. Note that if your account has a variable interest rate, the interest rate can change based on the economy and actions of the Fed — so you’ll want to remember that your projections are subject to change, and to re-run your calculations in the future. High-yield savings accounts in particular tend to fluctuate in either direction on a regular basis. However, savings vehicles like CDs, which have a fixed interest rate, will not change over time.
Any regular, additional contributions you might make. Saving an extra $500, $100, or $50 a month can greatly increase your savings over time. Experts recommend setting up recurring, automatic deposits into savings through your online banking portal or app to make this easier — we tend not to miss money we don’t see. If cash is feeling tight, start with a small amount (even $10) and set a calendar reminder to revisit, and perhaps increase, that contribution in six months.
A time frame. Your earnings will increase over time, especially if you’re making additional contributions. How far into the future do you want to look? You can typically calculate in months or years. Note that some savings vehicles, like CDs, have a prescribed time frame you agree to up front, usually between one and five years. Because you can’t withdraw your money before then without penalty, you’ll want to use the given time frame in your calculations.
How to calculate simple interest
The formula for simple interest is as follows:
The formula for simple interest requires your initial principal balance, annual interest rate, and time in years.
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Say you put a sum of $800 into a savings vehicle with a 1% annual simple interest rate. You’ll enter your initial sum ($800), your interest rate (1%), and the number of years (three). After three years with no additional contributions, the calculator will show that you have $824.
But a calculator becomes particularly helpful when you’re making additional contributions to your savings. For instance, take that same $800 initial sum in an account with 1% interest over three years. A savings calculator can help you easily run the numbers for three scenarios: contributing an extra $50, $100, or $500 a month.
Additional monthly contributionSum after 3 years$50$2,651$100$4,477$500$19,089
Simple vs. compound interest
When you’re looking to grow your money, simple interest might not be the way to go. An account with compound interest will accumulate money much faster.
However, remember that accounts that earn compound interest are typically those invested in the stock market, which means they take on risk you won’t see in a savings account or CD. Experts typically recommend keeping money you’ll need within the next five years in a savings account or other liquid, simple-interest bearing account, and investing money you won’t need for a longer timeframe.
If you are investing, though, compound interest combines the initial amount loaned with the interest that’s been accumulated from previous periods. Essentially, your interest earns interest on itself, meaning it snowballs over time. Compound interest can be incredibly useful in generating investment savings and building wealth, which is why it’s best to take advantage of compound interest when saving and investing where possible.
Use our compound interest calculator to figure out your total balance. If you click on “more details,” you’ll also get to see your initial investment, total contribution, and total interest.