What is simple interest?

Simple interest is interest calculated only on the principal amount. It does not compound; the interest each year is the same (I = P × r × t).

Where is simple interest used?

Simple interest is used in some loans, short-term deposits, and when the terms explicitly state simple interest. Most bank FDs use compound interest.

Simple vs compound interest – which is better for savings?

Compound interest gives higher returns for the same rate and tenure because interest is reinvested. For savings and FDs, compound interest is typically used.

Simple Interest Calculator

Calculate simple interest on a principal amount. Enter principal, annual rate and time in years. Interest = Principal × Rate × Time. No compounding.

Calculate Simple Interest

Principal (₹)

Annual rate (%)

Time (years)

Simple interest formula

I = P × r × t and A = P + I

I = Interest, P = Principal, r = Annual rate (decimal), t = Time in years. A = Total amount (Principal + Interest).

Example

₹1,00,000 at 6% for 5 years: I = 1,00,000 × 0.06 × 5 = ₹30,000. Total = ₹1,30,000.

FAQs

Key Terms

Maturity amount: Final value received at deposit end: principal plus accumulated interest.
Compounding: Interest earned on both principal and previously earned interest.
Annualized rate: Interest rate quoted for one year; converted internally for period-wise calculations.

Benefits of This Calculator

Quickly compare tenure and rate combinations before locking deposits.
Understand maturity, principal, and interest split through chart-style outputs.
Use formula and FAQ context to validate bank app numbers confidently.

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Where simple interest is still used in India

Simple interest looks dated next to compounding, but it is still the basis for several everyday Indian products: most car and personal loan rates are quoted as flat (simple) interest, gold-loan and money-lender contracts almost always use simple interest, and friends-and-family lending defaults to it. Knowing the simple interest formula — SI = P × r × t / 100 — also makes it easier to spot when a salesperson is quoting a flat rate and calling it "reducing balance."

The honest comparison: a flat 10% per annum on a 5-year loan is roughly equivalent to a 17–18% reducing-balance EMI rate, because under flat interest you keep paying interest on the full original principal even after you have repaid most of it. If a lender quotes flat interest, always ask for the reducing-balance equivalent before signing.

Worked example: ₹2,50,000 personal loan at 12% flat for 3 years

Principal: ₹2,50,000
Flat rate: 12% per year
Tenure: 3 years
Total simple interest: ₹90,000
Total repayment: ₹3,40,000
EMI: ₹9,444

The same ₹2.5 lakh at a reducing-balance rate would need around 21–22% to produce the same ₹9,444 EMI — that is the size of the gap between flat and reducing-balance quotation.