Simple Interest Calculator 💰

Total Interest
₹24,000
Total Amount
₹1,24,000

What is simple interest?

Simple interest is charged or earned only on the original amount (the principal), never on interest already added. The interest is the same every year, so it is easy to work out by hand. It is used for some short-term loans, informal lending between people and deposits that pay out interest instead of reinvesting it.

Simple interest formula

SI = P × R × T ÷ 100 · Total = P + SI

P is the principal, R the yearly interest rate in percent and T the time in years. For months, divide by 12 (6 months = 0.5 years); for days, divide by 365.

Where you meet simple interest

  • FDs that pay interest out monthly or quarterly, and schemes such as SCSS and the Post Office MIS, effectively earn simple interest because the interest isn't reinvested.
  • Money lent to friends or family is usually agreed at simple interest, often quoted per month: '1 rupee per hundred' means 1% a month, or 12% a year.
  • Some car and personal loan offers quote a 'flat rate'. That is simple interest on the full loan for the whole tenure. A 5% flat rate over 5 years costs the same as about 9.15% on the normal reducing balance.
  • Over short periods simple and compound interest are close. Over 10 years or more, compound interest grows much faster.
  • Interest you earn is taxable at your slab rate, whether it is simple or compound.

Worked example

  1. ₹1,00,000 lent at 8% a year for 3 years
  2. Interest = 1,00,000 × 8 × 3 ÷ 100 = ₹24,000
  3. Total to be repaid = ₹1,00,000 + ₹24,000 = ₹1,24,000
  4. That is ₹8,000 a year, or about ₹667 a month
  5. With compound interest (added every quarter, as in a bank FD) the interest would be ₹26,824, ₹2,824 more

Simple vs compound interest on ₹1 lakh

Interest earned at different rates. Compound interest is added every quarter, as in a bank FD.

RateSimple, 5 yearsCompound, 5 yearsSimple, 10 yearsCompound, 10 years
6%₹30,000₹34,686₹60,000₹81,402
8%₹40,000₹48,595₹80,000₹1,20,804
10%₹50,000₹63,862₹1,00,000₹1,68,506
12%₹60,000₹80,611₹1,20,000₹2,26,204

The gap widens with time because compound interest also earns interest on past interest.

Frequently Asked Questions

Multiply the principal by the yearly rate and the number of years, then divide by 100. ₹50,000 at 10% for 2 years earns 50,000 × 10 × 2 ÷ 100 = ₹10,000.
Convert the months to years by dividing by 12. ₹1,00,000 at 12% for 9 months: 1,00,000 × 12 × 0.75 ÷ 100 = ₹9,000.
It means ₹2 of interest on every ₹100 each month, which is 2% a month or 24% a year at simple interest.
For a borrower, simple interest costs less. For a saver, compound interest earns more, and the difference grows the longer the money is invested.
Home, car and personal loans from banks charge interest on the reducing balance each month, which is neither flat nor compound. Use the EMI calculator for those.

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