Simple Interest Calculator
Simple interest is calculated only on the original principal — interest is never added back to the principal for subsequent calculations. The formula is I = P × r × t, where P is the principal, r is the annual rate, and t is the time in years.
Unlike compound interest — where interest is reinvested each period — simple interest produces the same amount every period. This means it always yields less than compound interest when the term exceeds one period.
Under an illustrative assumption: investing 100.000.000 VND at 8%/year for 5 years, simple interest = 40.000.000 VND → total received 140.000.000 VND. With compound interest at the same parameters, you would receive 146.932.808 VND — 6.932.808 VND more.
The simple interest formula
Basic formula
I = P × r × t
| Symbol | Meaning |
|---|---|
| P | Principal (100.000.000 VND) |
| r | Annual rate (8% = 0.08) |
| t | Time in years (5) |
| I | Total interest (40.000.000 VND) |
Total amount received
A = P × (1 + r × t) = P + I = 140.000.000 VND
Average monthly interest
Interest divided evenly across months: 40.000.000 ÷ 60 = 666.667 VND/month.
Comparison with compound interest
Compound: A = P × (1 + r)^t = 100.000.000 × (1 + 0.08)^5 = 146.932.808 VND
Difference: 146.932.808 − 140.000.000 = 6.932.808 VND
Compound interest is higher because interest is reinvested each year — each subsequent year earns interest on a larger base. The longer the term, the wider the gap.
Model limitations
Simple interest is typically used for: short-term bonds, short-term personal loans, or informal lending agreements. Most financial products (bank savings, investments) use compound interest.
Worked example: 100.000.000 VND, 8%/year, 5 years
| Metric | Value |
|---|---|
| Principal | 100.000.000 VND |
| Annual rate | 8% |
| Term | 5 years |
| Total simple interest | 40.000.000 VND |
| Total received | 140.000.000 VND |
| Compound interest (reference) | 146.932.808 VND |
| Compound − simple gap | 6.932.808 VND |
Impact of term length
| Term | Simple interest | Total received |
|---|---|---|
| 2 years | 16.000.000 VND | 116.000.000 VND |
| 5 years | 40.000.000 VND | 140.000.000 VND |
Impact of rate (same 5-year term)
| Rate | Simple interest | Total received |
|---|---|---|
| 8% | 40.000.000 VND | 140.000.000 VND |
| 15% | 75.000.000 VND | 175.000.000 VND |
Frequently asked questions
What is simple interest?
Simple interest is calculated only on the original principal — previous interest is never added back. With 100.000.000 VND at 8%/year for 5 years: total interest = 100.000.000 × 0.08 × 5 = 40.000.000 VND. Each year you earn exactly 8.000.000 VND — the amount never changes.
How does simple interest differ from compound interest?
Compound interest reinvests interest each period — each subsequent period earns interest on a larger base. At the same 100.000.000 VND, 8%/year, 5 years: simple gives 140.000.000 VND, compound gives 146.932.808 VND — a gap of 6.932.808 VND. The longer the term, the wider the gap.
When is simple interest used in practice?
Simple interest is typically used for: short-term bonds (under 1 year), personal loans with short terms, or informal lending between individuals. Most bank products (savings accounts, mortgages, investments) use compound interest.
If the rate doubles, how much does simple interest increase?
Simple interest is directly proportional to the rate. If the rate doubles from 8% to 16%, interest also doubles: from 40.000.000 to 80.000.000 VND. Compound interest would increase by more than double due to the exponentiation effect.
Is simple interest suitable for long-term investing?
No. For long-term investing, compound interest is far superior. At 8%/year: after 5 years compound beats simple by 6.932.808 VND; after 20 years the gap grows much larger. Always prefer compound interest products for long-term goals.
How do I calculate simple interest per month?
Divide annual interest by 12: monthly interest = P × r × t ÷ 12 = 100.000.000 × 0.08 × 5 ÷ 12 = 666.667 VND/month (average). Note this is just an even split — in reality, simple interest does not "compound" monthly.