How simple interest works
Simple interest is calculated only on the original principal, never on accumulated interest. The formula is straightforward: Simple Interest = Principal × Rate × Time / 100. This calculator gives you the interest and the maturity amount for any principal, rate and period.
Because interest is charged only on the principal, simple interest grows in a straight line, the same amount is added each year. This is different from compound interest, which grows faster because it charges interest on interest.
Where simple interest is used
- Some fixed-term loans and short-term borrowings.
- Certain deposits and instruments that pay non-compounding interest.
- Quick back-of-envelope interest estimates.
Simple vs compound interest
Over short periods the two are close, but over long periods compound interest pulls far ahead because each year's interest itself earns interest. If you are comparing an investment or loan that compounds, use the compound interest calculator to see the real difference.
A worked example
On a principal of ₹1,00,000 at 8% for 5 years, the simple interest is ₹1,00,000 × 8 × 5 / 100 = ₹40,000. The maturity amount is ₹1,40,000. Under compound interest at the same rate, you would earn about ₹46,933, roughly ₹6,900 more, purely from interest compounding.
Frequently asked
What is simple interest?
Simple interest is interest calculated only on the original principal amount, not on any interest already earned. The formula is Principal × Rate × Time / 100. Because it ignores compounding, the interest added each year is the same, so the total grows in a straight line over time.
How is simple interest different from compound interest?
Simple interest is charged only on the principal, so the yearly interest is constant. Compound interest is charged on the principal plus accumulated interest, so it grows faster over time. Over short periods the difference is small; over long periods compound interest produces significantly more.
Where is simple interest used?
It appears in some short-term loans, certain fixed deposits or instruments that pay non-compounding interest, and in quick interest estimates. Many real-world loans and investments actually use compound interest, so check which one applies before relying on a simple-interest figure.
Can time be in months?
This calculator uses years, but you can enter fractions, for example 0.5 for six months or 1.5 for eighteen months. The formula scales proportionally with time, so half a year produces half the annual interest.
Is the result guaranteed?
It is an exact mathematical result for the inputs you provide, but real products may differ, they might compound, deduct TDS on interest, or carry fees. Treat the figure as an accurate calculation of pure simple interest, and check the actual terms of any specific product.