Simple interest is calculated only on the original amount: interest = principal x rate x time, with the rate as a yearly figure and time in years. Unlike compound interest, earned interest is not added back to the balance, so growth is a straight line.
Example: 10,000 at 5% for 3 years earns 10,000 x 0.05 x 3 = 1,500, for a total of 11,500. That is 500 per year, or about 41.67 per month.
Short-term loans, some car loans, certain bonds and many textbook problems use simple interest. Savings accounts and credit cards usually compound.
Divide months by 12 and days by 365. This calculator does that when you change the unit, so 18 months is treated as 1.5 years.
With compounding, interest earns interest. Over long periods compound interest grows much faster. Compare with the compound interest calculator.
See also: compound interest calculator · loan calculator · ROI calculator