Simple Interest Calculator
Calculate simple interest and total amount using P × R × T / 100
tuneAdjust Inputs
Simple Interest
₹40,000
≈ 40 Thousand
Total Amount
₹1,40,000
Principal + Interest
Principal
₹1,00,000
71.4% of total
SI Earned
₹40,000
28.6% of total
Time Period
5 Years
@ 8% p.a.
CI (Quarterly) for same
₹48,451
+₹8,451 more vs SI
Interest
28.6%
Principal
₹1,00,000
Interest
₹40,000
functions SI Formula
SI = P × R × T / 100
P = Principal | R = Rate (%) | T = Time (years)
Simple Interest vs Compound Interest
Simple Interest is calculated on the original principal throughout the entire tenure — the principal never changes. It is used for short-term loans, fixed deposits at certain banks, government bonds, and NSCs. The formula is SI = P × R × T / 100.
Compound Interest is calculated on the growing balance (principal + accumulated interest). Over time, compounding significantly outperforms simple interest — Einstein famously called compound interest "the eighth wonder of the world." The longer the tenure, the bigger the gap between SI and CI.
lightbulb Example Calculation
Scenario: ₹1 lakh invested at 8% p.a. for 5 years
1SI = 1,00,000 × 8 × 5 / 100 = ₹40,000
2Total Amount = ₹1,00,000 + ₹40,000 = ₹1,40,000
3CI (quarterly) = ₹1,48,451 (₹8,451 more!)
✓ SI earns ₹40,000 vs CI ₹48,451 — compounding adds 21% more returns over 5 years
Frequently Asked Questions
Simple interest explained for financial planning
Where is simple interest used in real financial products?
Simple interest is used in: short-term personal loans (tenure under 1 year), vehicle loans by some dealerships, government bonds (coupon payments), NSCs (National Savings Certificates) for year-by-year interest accrual display, and informal lending. Most bank FDs and recurring deposits use compound interest, not simple interest — always check the compounding frequency before comparing.
How does time period affect simple interest vs compound interest differently?
For SI, interest grows linearly — doubling the time doubles the interest. For CI, interest grows exponentially — doubling the time more than doubles the interest (depending on rate). At 10% p.a.: after 10 years, SI gives 100% return; CI (annual compounding) gives 159% return. After 20 years: SI gives 200%; CI gives 573%. The difference widens dramatically with time.
What is effective annual rate when simple interest is used?
For simple interest, the stated rate equals the effective annual rate for 1-year investments. But for multi-year SI investments, the effective annual rate is actually lower than the stated rate because you're not earning interest on accumulated interest. For a 3-year SI loan at 15%, the effective annual rate is still 15%, but you pay more total interest than a 3-year CI loan at the same rate because SI accrues on the original principal throughout.