Simple Interest Calculator
Calculate simple interest on a loan or deposit. Quick formula-based calculator.
Total amount
What is simple interest?
Simple interest is the interest calculated only on the original principal (loan amount or deposit), never on accumulated interest. Each period, you earn (or pay) the same fixed amount: principal × rate. This contrasts with compound interest where interest earns interest, growing exponentially. Simple interest is used in: short-term loans, treasury bills, some corporate bonds (especially zero-coupon), car loans in some countries, fixed deposits at certain banks, and many traditional moneylending contracts in India. Understanding simple interest helps you compare loan products and know what you’re really paying. Over long periods, simple interest is dramatically cheaper than compound interest – this matters when comparing loan options.
How to use this tool
- Enter principal — Initial amount – the deposit you’re making or the loan you’re taking.
- Enter interest rate — Annual percentage rate (APR). For a 7% per year rate, enter 7 (not 0.07).
- Enter time period — Number of years. Use decimals for partial years – 1.5 for 18 months.
- Read the breakdown — Total amount (principal + interest), interest earned/paid, principal, and a comparison vs compound interest to show what you’re missing or saving.
Simple Interest formula
Simple Interest (SI) = (Principal × Rate × Time) / 100
Total Amount = Principal + Simple Interest
- Principal (P) – original amount
- Rate (R) – annual percentage
- Time (T) – years
Example: ₹50,000 at 8% per year for 5 years:
- SI = (50,000 × 8 × 5) / 100 = ₹20,000
- Total = ₹50,000 + ₹20,000 = ₹70,000
Vs compound interest (compounded annually): Total = ₹73,466. The extra ₹3,466 is what compounding adds.
Over longer periods or higher rates, the gap grows exponentially.
Examples
- FD ₹1 lakh @ 7% simple interest for 5 years: Interest ₹35,000, total ₹1.35 lakh. (Compound would give ₹1.40 lakh – ₹5K more.)
- Personal loan ₹3 lakh @ 12% for 2 years (simple): Interest ₹72,000, repay ₹3.72 lakh. Banks rarely offer simple interest loans – most are reducing-balance (compound-like).
- School fee EMI scheme: ₹1.5 lakh @ 6% for 2 years (simple): Interest ₹18,000, total ₹1.68 lakh. EMIs ₹7,000/month.
- Treasury bill ₹10 lakh @ 6.5% for 91 days (simple): Interest = (10L × 6.5 × 91/365) / 100 = ₹16,205. Total redemption ₹10.16 lakh.
- Indian moneylender loan (often quoted as simple): ₹50,000 @ 24% for 6 months: Interest = (50K × 24 × 0.5) / 100 = ₹6,000. Repay ₹56,000. Verify if it’s simple or reducing!
Tips & best practices
- Always verify whether a loan or deposit is simple or compound interest – compound is much more expensive for borrowers
- Short-term instruments (under 1 year): simple interest is fine and common
- Long-term deposits (over 3 years): always prefer compound interest – the gap grows dramatically
- Loans from moneylenders or informal sources often quote simple interest at LOW rates but the actual rate when compounded daily is much higher
- Treasury bills and commercial paper use simple interest because they’re short-term (under 1 year)
- When comparing loan products, ask for the APR (Annual Percentage Rate) on a reducing-balance basis – that’s the standard
Limitations & notes
Simple interest is rarely used in modern formal banking – most loans use reducing-balance method (which is effectively compound) and most deposits use compound interest. Use simple interest calculations primarily for: short-term instruments, government securities (T-bills), historical contracts, and quick estimates. Don’t assume your bank loan is simple interest – always confirm.
Frequently Asked Questions
Should I prefer simple or compound interest?
Depends if you’re lending or borrowing! For YOUR investments/deposits, compound is much better (your money grows on its own growth). For YOUR loans, simple is much better (you pay less total interest). Banks know this and structure products accordingly.
Why is compound interest higher than simple?
Because compound interest accumulates – each period’s interest is added to principal for the NEXT period’s calculation. Over time, you’re earning (or paying) interest on interest on interest. The gap is small over 1-2 years but huge over 20+ years.
Are bank fixed deposits simple or compound interest?
Most Indian FDs use compound interest, compounded quarterly. Some short-term FDs (under 1 year) use simple interest. Senior citizens’ FDs and tax-saver FDs are usually compounded. ALWAYS check the offer document – the same bank may offer different compounding schedules.
How is loan interest typically calculated?
Modern formal loans (home, car, personal) use the ‘reducing balance’ method – similar to compound interest. Interest each month is calculated on outstanding principal. Old-fashioned ‘flat rate’ loans use simple interest – and ‘flat 12%’ is roughly equivalent to 22-24% reducing balance. Beware of flat-rate marketing.
Can simple interest be negative?
Not in normal contexts. However, some deposit accounts have negative interest in low-rate countries (Japan, EU before 2022) where you pay the bank for storing your money. Simple interest formula still applies: just with a negative rate.
How do treasury bills calculate interest?
Indian T-bills (91-day, 182-day, 364-day) use simple interest calculated on the actual number of days held. Formula: Interest = (Face Value x Rate x Days) / (365 x 100). They are sold at discount and mature at face value – the difference is the interest.
Is the rate the same regardless of compounding?
No – this is a key trap. A ‘nominal annual rate’ of 12% compounded monthly is actually 12.68% effective. Always compare EAR (Effective Annual Rate) when comparing products with different compounding frequencies. Simple interest 12% IS the effective rate (no compounding).