Simple Interest Calculator
What is the simple interest formula?
Simple Interest (SI) = Principal (P) × Rate (R) × Time (T) ÷ 100 Pairs well with the Compound Interest Calculator and the FD Calculator.
Total Amount (A) = P + SI = P × (1 + R×T/100)
| Variable | Symbol | Example |
|---|---|---|
| Principal | P | $50,000 |
| Annual interest rate | R | 9% per year |
| Time period | T | 3 years |
| Simple Interest | SI = P×R×T/100 | $13,500 |
| Total Amount | A = P + SI | $63,500 |
How does simple interest compare to compound interest?
| Principal | Rate | Years | Simple Interest | Compound Interest | Difference |
|---|---|---|---|---|---|
| $10,000 | 10% | 5 | $5,000 | $6,105 | $1,105 more with CI |
| $10,000 | 10% | 10 | $10,000 | $15,937 | $5,937 more with CI |
| $10,000 | 10% | 20 | $20,000 | $57,275 | $37,275 more with CI |
Where is simple interest used in practice?
Flat rate loans: Many personal loans, consumer goods loans, and gold loans in India use simple interest on the original principal — called a "flat rate." This makes them more expensive than reducing-balance loans. Short-term loans: For tenures under 1 year (payday loans, bridge loans), simple interest approximates well. Fixed deposits (some banks): FDs under 1 year pay simple interest; FDs above 1 year pay compound interest quarterly.
Converting flat rate to reducing balance
A 10% flat rate ≈ 18.5% reducing balance rate. To convert: multiply flat rate × 1.83 (approximate). Always ask your lender: "Is this the reducing balance rate or the flat rate?"
How is this different from the Interest and Compound Interest calculators?
This page focuses on simple interest only — the SI = PRT/100 formula used in flat-rate loans, deposits, and exam problems, with the flat-to-reducing conversion Indian borrowers need. For growth that compounds, use the compound interest calculator; to compare both modes in one view, the interest calculator does it side by side.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute financial advice. Results may vary based on actual rates, fees, and conditions. Always consult a qualified financial advisor or official government resources before making financial decisions. View our calculation methodology.
Frequently asked questions
What is the difference between simple interest and compound interest?
Simple interest is calculated only on the original principal — the interest never earns interest itself. Compound interest adds earned interest back to the principal, so the next period's interest is higher. ₹1 lakh at 10% for 10 years: SI = ₹1 lakh total interest. CI (annual) = ₹1,59,374. The longer the period, the greater the difference.
How do you calculate simple interest for months?
Convert months to years: T = months ÷ 12. For 18 months: T = 18/12 = 1.5. SI = P × R × 1.5 ÷ 100. For 6 months: T = 0.5. SI = P × R × 0.5 ÷ 100. Daily: T = days ÷ 365 (or 360 for some financial conventions).
What is a flat rate loan?
A flat rate loan charges simple interest on the original full principal throughout the loan, regardless of how much you have repaid. A 10% flat rate on ₹10 lakh for 3 years: interest = ₹10L × 10% × 3 = ₹3 lakh total, paid in 36 equal instalments. This is equivalent to approximately 18.5% reducing balance rate — much more expensive than it appears.
How do you find the principal from simple interest?
Rearrange the formula: P = (SI × 100) ÷ (R × T). If you earned ₹18,000 in simple interest at 6% for 3 years: P = (18,000 × 100) ÷ (6 × 3) = 18,00,000 ÷ 18 = ₹1,00,000.
When was simple interest used in banking?
Simple interest was the dominant method before compound interest became standard. It is still used for: short-term inter-bank lending, Treasury bills and government bonds priced on yield basis, some consumer credit (hire purchase, flat rate loans), and in academic finance education as the foundation before compound interest.
Sources & References
Sources: RBI — Master Direction on Interest Rate on Advances; Indian Contract Act 1872 (moneylending definitions); NIST Financial Mathematics reference.
Simple interest in Indian banking: gold loans and NBFCs
In India, most major loans use reducing balance (compound) interest. However, simple interest remains common in specific products:
| Product | Lender Type | Interest Method | Typical Rate |
|---|---|---|---|
| Gold loans | Banks, NBFCs, Muthoot, Manappuram | Simple interest (monthly) | 7–24% p.a. |
| Fixed deposits (under 1 year) | All banks | Simple interest | 5.5–7.5% p.a. |
| Post Office Time Deposits (1-year) | India Post | Simple interest | 6.9% p.a. |
| Kisan Credit Card loans | Co-operative banks | Simple interest (short-term) | 4–7% p.a. |
| Hire purchase (consumer goods) | NBFCs, dealers | Flat rate (simple interest) | 8–15% flat ≈ 15–28% reducing |
| Chit funds | Registered chit companies | Varies | Auction-based |
Flat rate to reducing balance conversion table
Flat rate loans (simple interest on full principal throughout) are significantly more expensive than reducing balance loans at the same stated rate. This table shows the true cost:
| Flat Rate | Effective Reducing Balance Rate | Total Interest on ₹1L for 3 Years |
|---|---|---|
| 6% flat | ~10.9% reducing | ₹18,000 |
| 8% flat | ~14.6% reducing | ₹24,000 |
| 10% flat | ~18.5% reducing | ₹30,000 |
| 12% flat | ~22.2% reducing | ₹36,000 |
| 15% flat | ~28.0% reducing | ₹45,000 |
Conversion formula (approximate): Reducing rate ≈ Flat rate × 1.83. Always ask your lender: "Is this the reducing balance rate?" before signing any loan agreement.
The Rule of 72 and Rule of 69
The Rule of 72 estimates how long it takes money to double under compound interest: Years to double = 72 ÷ annual rate. At 9%: 72÷9 = 8 years. At 12%: 72÷12 = 6 years. Under simple interest, doubling time = 100 ÷ rate. At 9% simple interest: 100÷9 = 11.1 years — 38% longer than compound interest at the same rate. The Rule of 69.3 is more accurate for continuous compounding: years = 69.3 ÷ rate. For most practical purposes, Rule of 72 is easier to calculate mentally and accurate enough.
Time value of money: why a dollar today is worth more
The time value of money (TVM) is the foundation of all financial mathematics. $1,000 today is worth more than $1,000 in one year because: (1) you could invest it and earn interest, (2) inflation reduces purchasing power over time, (3) there is always risk that future money may not be received. Simple interest is the most basic application of TVM — calculating how much a present value (PV) grows to a future value (FV) over time. FV = PV × (1 + R×T/100). Compound interest is the more powerful version where interest earns interest, producing exponential rather than linear growth. For short periods (under 1 year), the difference between simple and compound interest is small. Over longer periods, compounding becomes dramatically superior.
Fixed deposit interest calculation under 1 year
Bank FDs with tenure under 12 months pay simple interest in India. Formula: Interest = Principal × Rate × Days ÷ (100 × 365). Example: ₹2,00,000 at 6.5% for 90 days: Interest = 2,00,000 × 6.5 × 90 ÷ (100 × 365) = ₹3,205. Maturity amount = ₹2,03,205. Tax: FD interest is added to your income and taxed at your slab rate. TDS is deducted at 10% if interest exceeds ₹40,000/year (₹50,000 for senior citizens) — submit Form 15G/15H if your income is below the taxable limit to avoid TDS. Related: Compound Interest Calculator.
Where simple interest is still used in India
While most bank deposits and loans in India use compound interest, simple interest (flat rate) persists in specific products. Knowing the difference saves money:
| Product | Interest Type | Notes |
|---|---|---|
| Gold loans (NBFC) | Simple interest (flat) | Muthoot, Manappuram: interest charged on original principal only |
| Personal loan (flat rate) | Flat (simple) | Quoted as flat 12% = effective ~22% reducing rate |
| FD under 1 year | Simple interest | Compounding starts at annual intervals; sub-annual FDs use SI |
| Chit funds | Simple interest | Monthly contribution; foreman charges flat interest on advances |
| Post Office Monthly Income Scheme | Simple interest | Interest paid monthly at fixed rate on principal |
| Loan from family/friends | Usually SI | Informal agreements typically use straightforward flat interest |
Flat rate vs reducing balance: the hidden cost
A loan quoted at flat 10% is NOT the same as 10% on a reducing balance. With flat rate, interest is calculated on the original principal throughout the loan tenure, even as you repay principal. With reducing balance, interest is charged only on the outstanding amount — which decreases each month.
| Loan: ₹1,00,000 for 2 years | Flat Rate 10% | Reducing Balance ~18.5% |
|---|---|---|
| Monthly payment | ₹5,000 (principal) + ₹833 interest = ₹5,833 | ₹5,000 (approximate EMI) |
| Total interest paid | ₹20,000 (10% × ₹1L × 2 years) | ₹20,000 (same total cost!) |
| Effective annual rate | ~18.5% reducing | 18.5% reducing |
A flat rate of 10% is equivalent to approximately 18–19% on a reducing balance basis. The quick conversion: multiply the flat rate by 1.83–1.9 for an approximate reducing balance equivalent.
Rule of 69 and Rule of 72: doubling time
The Rule of 72 estimates how long it takes for money to double with compound interest: Years = 72 ÷ interest rate. At 9%: 72 ÷ 9 = 8 years to double. The Rule of 69 is more accurate for continuous compounding: Years = 69 ÷ rate. For simple interest, doubling time is simply: Years = 100 ÷ rate. At 10% simple interest: 100 ÷ 10 = 10 years to double. This is always longer than compound interest — at 10% compound, money doubles in 7.27 years (Rule of 72 gives ≈7.2 years).
Our formulas and sources: Calculation Methodology · Editorial Policy