Simple Interest Calculator
Enter the principal, annual interest rate and time period to get the simple interest earned and the final maturity amount.
What is simple interest?
Simple interest is interest charged only on the original principal, never on interest already earned. It grows in a straight line — the same amount is added every year — which makes it easy to calculate and predict. It is common on short-term loans, some fixed deposits, car loans and many informal arrangements.
The simple interest formula
Where P is the principal, R is the annual rate (in per cent) and T is the time in years. The maturity amount is simply P + SI.
Worked example
Invest ₹1,00,000 at 8% for 5 years: SI = (1,00,000 × 8 × 5) ÷ 100 = ₹40,000. The maturity amount is ₹1,40,000. Because the interest is flat, you earn exactly ₹8,000 each year regardless of how much has already accrued.
Simple vs compound interest
The key difference is what interest is charged on. Simple interest uses only the principal; compound interest adds each period’s interest to the balance, so future interest is earned on interest too. Over short periods the gap is small, but over long horizons compounding pulls far ahead.
| Years | Simple (8%) | Compound (8%) |
|---|---|---|
| 5 | ₹1,40,000 | ₹1,46,933 |
| 10 | ₹1,80,000 | ₹2,15,892 |
| 20 | ₹2,60,000 | ₹4,66,096 |
On ₹1,00,000 at 8%, compounding is worth over ₹2,00,000 more than simple interest after 20 years — the reason long-term investing favours compounding.
Where simple interest is used
- Short-term and bridging loans, where the term is too short for compounding to matter much.
- Car and consumer loans in some markets quote simple interest.
- Some fixed and recurring deposits for short tenures.
- Informal lending between individuals, for its simplicity.
Turning the formula around
The same formula solves for any missing value. To find the rate, R = (SI × 100) ÷ (P × T). To find the time, T = (SI × 100) ÷ (P × R). And to find the principal needed for a target interest, P = (SI × 100) ÷ (R × T). This makes simple interest a flexible tool for quick financial checks.
Tips
- Confirm whether a quoted loan or deposit uses simple or compound interest — it changes the true cost or return.
- For anything longer than a couple of years, prefer compounding when investing.
- Keep the rate and time in the same units (annual rate with years).
Glossary
- Principal: the original amount.
- Rate: the annual interest percentage.
- Maturity amount: principal plus interest.
- Compounding: earning interest on interest.
Simple interest on loans vs savings
The same formula describes two opposite experiences. On a savings product, simple interest is money you earn on your deposit. On a loan, it is the cost you pay on the amount borrowed. Some short-term and car loans quote simple interest, which can be cheaper than a compounding equivalent over a short term — but always confirm the method, because a headline rate means little without knowing whether it compounds.
A note on time and units
Keep the rate and time in matching units: an annual rate pairs with time in years. For part-years, use a decimal (six months is 0.5 years). If a rate is quoted monthly, either convert it to annual or express the time in the same monthly unit. Getting the units consistent is the most common place simple-interest calculations go wrong.
Quick reference
| Principal | Rate | Time | Interest |
|---|---|---|---|
| ₹50,000 | 8% | 2 yr | ₹8,000 |
| ₹1,00,000 | 10% | 3 yr | ₹30,000 |
| ₹2,00,000 | 7.5% | 5 yr | ₹75,000 |
Each row is simply (P × R × T) ÷ 100 — a useful sense-check for mental maths.
Simple interest and inflation
Interest tells only half the story; inflation tells the other. If your savings earn 6% simple interest while prices rise 5%, your real gain is only about 1%. When the interest rate is below inflation, money can grow in rupees yet lose purchasing power in real terms. For short horizons this matters little, but it is a key reason long-term savers lean toward compounding, growth investments, or at least rates comfortably above inflation.
When simple interest is used in practice
Simple interest shows up in more places than you might expect: many car and personal loans in some markets, short-term bridging finance, certain bonds and treasury instruments that pay a flat coupon, and countless informal loans between friends or family. Its appeal is transparency — anyone can verify the figure with a single multiplication — which is exactly why it remains popular for short, straightforward arrangements even in a world of compounding products.
Simple vs flat vs reducing rates
Watch the wording on any loan quote. A flat rate charges interest on the full original amount for the whole term — mathematically the same as simple interest — even though you are steadily repaying the balance, which makes the true (reducing-balance) cost noticeably higher than the flat percentage suggests. A reducing-balance rate charges only on what you still owe. The same “10%” can therefore mean very different things, so always ask which basis a lender is quoting before comparing offers.
Frequently asked questions
What is the simple interest formula?
SI = (P × R × T) ÷ 100, where P is principal, R the annual rate in per cent, and T the time in years.
How is it different from compound interest?
Simple interest is charged only on the principal; compound interest is charged on the principal plus previously earned interest.
Is the maturity amount principal plus interest?
Yes — maturity = P + SI.
Can I find the rate or time from the interest?
Yes — rearrange the formula: R = SI×100 ÷ (P×T), or T = SI×100 ÷ (P×R).
When should I prefer compound interest?
For long-term investing, because interest-on-interest compounds and outgrows simple interest significantly.