Simple Interest Calculator

Simple interest formula

Simple interest (SI) = P × R × T ÷ 100
Total amount = P + SI

• P = Principal amount
• R = Rate of interest per year
• T = Time in years

Example: ₹1,00,000 at 8% per year for 5 years earns ₹40,000 in simple interest, so you get back ₹1,40,000. With yearly compounding the same deposit would give ₹1,46,933.

For months, divide by 12: ₹50,000 at 12% for 6 months earns 50,000 × 12 × 0.5 ÷ 100 = ₹3,000.

Where simple interest is used

• Short-term bank FDs of less than 6 months are usually paid simple interest.
• Loans from friends, family or informal lenders are often agreed at a flat monthly rate, which is simple interest.
• Gold loans from many NBFCs quote a simple monthly interest rate.
• Post Office schemes such as the Monthly Income Scheme pay simple interest every month without compounding.
• Late payment penalties and interest on income tax dues (Sections 234A/B/C) are charged at simple interest of 1% per month.

Simple interest vs compound interest

Over one year both give the same result. After that, compound interest pulls ahead because interest starts earning interest. On ₹1 lakh at 8%, the difference is ₹6,933 after 5 years, ₹35,892 after 10 years and about ₹2.06 lakh after 20 years. As a borrower you want simple interest; as an investor you want compounding.