Interest Calculator: Work Out Simple Interest on Savings and Loans

Use the interest calculator above

Enter your starting amount (the principal), the annual interest rate as a percentage, and how long the money is invested or borrowed for. The tool returns the interest earned or charged and your final balance. If you want to see what happens when interest earns interest on itself, switch over to compound interest afterwards, this page deliberately keeps things to plain simple interest so you can see exactly where every pound comes from.

What interest actually is

Interest is the price of money over time. When you save, the bank pays you interest for letting it use your cash. When you borrow, you pay the lender interest for the same reason. The rate is almost always quoted as an annual percentage, so a 4% rate means 4% of the balance per year before any tax or fees.

There are two ways interest is worked out. Simple interest is charged only on the original amount, year after year. Compound interest is charged on the original amount plus any interest already added, so it snowballs. This interest calculator focuses on simple interest because it is the cleanest way to see the underlying sum, and because plenty of real products, such as some fixed-rate bonds paying interest away to a separate account, and most court-awarded late payment interest, genuinely use the simple method.

Simple versus compound interest, in one breath

Say you put £1,000 away at 5% for three years. Simple interest pays £50 a year, every year, so £150 in total. Compound interest pays £50 in year one, then 5% of £1,050 in year two, then 5% of £1,102.50 in year three, ending up slightly higher at around £157.63. Over short periods and small sums the gap is modest. Over decades, or on a large mortgage, it becomes the whole story. If your money compounds, use our compound interest calculator instead for an accurate figure.

The simple interest formula

The simple interest formula is short enough to do on the back of a receipt:

Interest = Principal × Rate × Time

Or in everyday words: take the amount of money, multiply it by the interest rate (written as a decimal), then multiply by the number of years. The rate as a decimal just means dividing the percentage by 100, so 4% becomes 0.04 and 7.5% becomes 0.075.

• Principal is the amount you start with, the lump you save or the sum you borrow.
• Rate is the annual interest rate as a decimal.
• Time is the term in years. For months, divide by 12; for days, divide by 365.

To get your final balance, add the interest back on: Final amount = Principal + Interest. That is the entire engine behind the interest calculator. There is nothing else hidden in it.

Working with months and odd terms

Most real questions are not in neat whole years. If you are saving for eight months, your time figure is 8 ÷ 12, which is 0.667. If a loan runs for 18 months, time is 1.5. Get this part right and the rest follows. A common slip is to enter a monthly rate where the calculator expects an annual one, or to type the term in months into a box asking for years. Always match the rate and the time to the same period.

Worked example: Priya's £8,000 fixed-rate bond

Priya, a teacher in Leeds, moves £8,000 into a one-year fixed-rate bond paying 4.6% simple interest, with the interest paid out at the end of the term rather than added back in. Here is how the interest calculator reaches her figure:

• Principal = £8,000
• Rate = 4.6% = 0.046
• Time = 1 year
• Interest = 8,000 × 0.046 × 1 = £368
• Final amount = 8,000 + 368 = £8,368

So Priya earns £368 in gross interest. Whether she keeps all of it depends on tax, which we come to below. Because she is a basic-rate taxpayer, this sits comfortably inside her Personal Savings Allowance, so in her case the £368 stays in her pocket in full.

Second example: a £3,500 personal loan

Now flip it to borrowing. Tom takes a £3,500 loan to cover a car repair, quoted at 9% over two years on a simple-interest basis. Interest = 3,500 × 0.09 × 2 = £630. He repays £4,130 in total. Most real loans, though, charge interest on the reducing balance and quote an APR that bundles in fees, so the headline rate and the true cost can differ. For an apples-to-apples comparison of loan deals, our APR calculator and loan calculator show the monthly repayment and total interest on a typical reducing-balance loan.

Third example: working in months

Aisha saves £2,400 in a notice account at 3.75% for nine months. Time = 9 ÷ 12 = 0.75. Interest = 2,400 × 0.0375 × 0.75 = £67.50. Her balance after nine months is £2,467.50. Same formula, just a fractional term.

Interest on savings versus interest on loans

The arithmetic is identical, but the direction matters. On savings, interest is money coming to you, and a higher rate is good news. On a loan, interest is the cost of borrowing, and a lower rate is what you want. One catch worth flagging: the rate a bank advertises on savings is often the AER (Annual Equivalent Rate), which already assumes compounding, while a loan is usually advertised as an APR. Simple interest gives you a clean baseline, but always read which rate type a product quotes before you commit.

For savings you plan to leave untouched so the interest builds on itself, a projection tool is more realistic than a flat simple-interest sum. Our savings calculator models regular top-ups and compounding over time, which is closer to how an easy-access account or ISA actually behaves.

Tax on savings interest in the UK

Interest you earn on savings can be taxable, and this is where people get caught out. Two allowances usually shield it:

• The Personal Savings Allowance lets a basic-rate (20%) taxpayer earn £1,000 of savings interest tax-free each year. A higher-rate (40%) taxpayer gets £500. Additional-rate (45%) taxpayers get £0.
• The starting rate for savings can give up to a further £5,000 of interest at 0%, though it tapers away as your other (non-savings) income rises above the Personal Allowance, so it mainly helps people with low earnings.

Interest above your allowances is taxed at your normal Income Tax rate: 20%, 40% or 45% depending on the band it falls into. Interest sits inside an ISA is free of tax entirely, which is why an ISA can be worth using once your savings start throwing off serious interest. Scotland sets its own Income Tax bands, but savings interest is taxed at the same UK-wide rates everywhere, so a saver in Glasgow and a saver in Cardiff are treated identically on their interest.

When does the tax actually bite?

Take Priya's £368 of interest from earlier. As a basic-rate taxpayer with a £1,000 allowance, she pays nothing. But a higher-rate saver with £600 of interest would be £100 over their £500 allowance, and that £100 would be taxed at 40%, costing £40. HMRC usually collects this automatically by adjusting your tax code rather than sending a bill, but if you complete Self Assessment you declare it on your return. Banks no longer deduct tax at source, so the gross interest the calculator shows is what lands in your account, and any tax is handled separately.

Tips and things to watch

• Match the rate to the term. An annual rate with a term in years, or a monthly rate with a term in months. Mixing them is the single most common error.
• Check whether interest compounds. If it does, simple interest understates savings growth and understates loan cost. Use the compound tool for anything left to roll up.
• Watch the AER versus the flat rate. A savings account quoting 4% AER paid monthly earns marginally more than 4% simple over a year because of compounding within the year.
• Mind your allowance. Rising rates mean more savers tip over the Personal Savings Allowance for the first time. A £20,000 pot at 5% throws off £1,000 of interest, exactly the basic-rate limit.
• Early withdrawal penalties. Fixed bonds often dock interest if you pull out early, so your real return can be lower than the simple figure suggests.

Common mistakes people make

Entering the rate as a whole number where the formula needs a decimal is a classic, turning 4% into 400% if you are not careful, though most calculators handle the percentage for you. Another is forgetting that simple interest does not match how most modern savings accounts pay, they compound, so you may slightly under-egg your real return. On the borrowing side, assuming a simple-interest figure equals the true cost of a loan ignores arrangement fees and the reducing-balance method, which is exactly what APR exists to capture.

People also forget tax. Two or three years ago, with rates near zero, almost nobody breached the Personal Savings Allowance. Now a modest pot at a decent rate can, and the resulting tax bill, collected quietly through a changed tax code, takes savers by surprise. Run your expected interest through the figure above and check it against your allowance before you assume the headline number is what you keep.

This interest calculator gives estimates for guidance only and is not personal tax or financial advice. For a decision that turns on tax, check your own position or speak to a qualified adviser.

Who should use this calculator

Covers both kinds of interest, and the difference between them is the point. Simple interest is charged on the original amount only; compound interest is charged on the balance including interest already added. Over short periods they are close; over long ones they diverge enormously.

Which applies depends on the product. Most UK savings and mortgages compound; some fixed-term loans and bonds use simple interest. Getting it wrong in either direction misleads — assuming simple interest on a credit card badly understates the cost, and assuming simple interest on savings badly understates the growth.

What this calculator assumes

• Compound interest is applied to the running balance; simple interest only to the original principal.
• The rate entered is annual, compounded at the frequency set.
• Interest is reinvested rather than withdrawn.
• One rate is applied throughout, with no change part-way.

Limitations — what it does not cover

• Compounding frequency. Daily, monthly and annual compounding at the same nominal rate give different results — AER is the figure that makes accounts comparable.
• Income Tax on the interest earned, once your Personal Savings Allowance is used up.
• Variable and bonus rates that change or expire during the term.
• Inflation, which erodes real value even as the balance grows.
• Fees, which compound against you in the same way.

Related calculators

If your money rolls up rather than pays out flat, the compound interest calculator gives a truer figure. To project a savings pot with regular deposits, use the savings calculator, and for the real cost of borrowing, compare deals with the loan calculator and the APR calculator. For more on how interest builds over time, the independent guidance at MoneyHelper's guide to compound interest is a clear, official starting point.