Simple interest calculator
The classic I = P × r × t — what a principal earns when interest never compounds. We show the compound result beside it, because the gap between the two is the argument for reinvesting.
Your numbers
Straight line vs curve, year by year
| Year | Simple | Compound |
|---|---|---|
| 1 | $10,400 | $10,400 |
| 2 | $10,800 | $10,816 |
| 3 | $11,200 | $11,249 |
| 4 | $11,600 | $11,699 |
| 5 | $12,000 | $12,167 |
| 6 | $12,400 | $12,653 |
| 7 | $12,800 | $13,159 |
| 8 | $13,200 | $13,686 |
| 9 | $13,600 | $14,233 |
| 10 | $14,000 | $14,802 |
The formula, and when you'll meet it
I = P × r × t · total = P × (1 + r × t)
Simple interest shows up in Canada anywhere interest is paid out instead of reinvested: annual-payout GICs funding retirement income, bond coupons, most car and personal loans (computed on the declining balance), and informal lending. It isn't worse — a retiree spending the interest wants the payout — but it should be a choice. The silent version, where a compounding option existed and nobody took it, is the one that costs $802 on the default scenario above. For the full saving-and-contributing picture, the compound interest calculator takes it from here.
Frequently asked questions
What is simple interest?
Simple interest is calculated only on the original principal, never on accumulated interest. The formula is I = P × r × t: principal times the annual rate times the time in years. $10,000 at 4% simple interest earns exactly $400 every year — year one and year twenty alike — because the interest is paid out or tracked separately rather than added to the balance.
What is the difference between simple and compound interest?
Compound interest earns interest on the interest — each period's earnings join the principal and grow too. The difference starts tiny and ends enormous: on the default scenario above ($10,000 at 4% for 10 years), simple interest reaches $14,000 while compounding reaches $14,802 — a gap of $802 that exists purely because the interest itself was left to earn. Stretch the years and watch the curve pull away from the straight line.
Where is simple interest actually used in Canada?
More places than people expect. GICs with annual payout — where interest is paid to you each year instead of reinvested — effectively earn simple interest, which is why an "annual pay" GIC's total return trails a compounding GIC at the same posted rate. Most car loans and personal loans accrue simple daily interest on the declining balance, bonds pay flat coupons on face value, and CRA interest charges accrue daily without monthly compounding into the calculation base. Knowing which kind you're being quoted is the whole game.
Is a GIC simple or compound interest?
It depends on the payout option you choose. A compounding GIC reinvests each year's interest, so a 4% 5-year GIC genuinely earns 4% compounded annually. The same GIC with annual payout sends the interest to your chequing account each year — and unless you reinvest it yourself, you've converted it to simple interest. Retirees drawing GIC interest as income do this deliberately; savers who just never got around to reinvesting do it by accident. Compare options on the best GIC rates table.
Why does the compound gap grow so fast in later years?
Because compounding is exponential and simple interest is linear. Simple interest adds the same flat amount each year; compounding adds a growing amount because the base keeps expanding. In year one the difference is zero; by year ten it's visible; by year thirty it dominates. This is the mathematical core of every long-horizon argument on this site — see the compound interest calculator for the full contributions-over-time version.
Educational tool, not financial advice. The compound comparison assumes annual compounding; actual products compound at varying frequencies, and loan interest typically accrues daily on a declining balance. Confirm the interest method in your product's terms.