What is the simple interest formula?

Simple Interest (SI) = P × R × T ÷ 100, where P is the principal amount, R is the annual interest rate in percent, and T is the time period in years. The total amount = P + SI.

What is the difference between simple and compound interest?

In simple interest, interest is calculated only on the original principal throughout the entire period. In compound interest, interest is calculated on the principal plus previously accumulated interest, causing exponential growth. Compound interest always yields a higher return for the same rate and period.

Where is simple interest used?

Simple interest is commonly used for short-term personal loans, vehicle loans, some savings schemes, treasury bills, and certain fixed deposits where interest is paid out periodically rather than reinvested.

How do I convert months to years for the formula?

Divide the number of months by 12. For example, 18 months = 1.5 years. Similarly, convert days by dividing by 365. The calculator does this conversion automatically when you select 'Months' or 'Days' time unit.

Can simple interest be negative?

No — simple interest itself cannot be negative since it is a product of positive values (principal, rate, time). However, in an inflation context, the 'real' return can be negative if the interest rate is lower than the inflation rate.

Simple Interest Calculator

⚠️ Not financial advice. Results are illustrative only and should not be used as the basis for any investment, tax, or financial decision. Consult a qualified financial adviser or chartered accountant before acting on any figure shown.

Simple interest explained

Simple interest is the most straightforward way to calculate the cost of borrowing money or the return on a basic savings instrument. Unlike compound interest, the interest amount is the same for every period — it never “compounds” onto itself. This makes it easy to predict exact repayment amounts.

Simple vs compound interest — practical difference

On ₹1,00,000 at 10% for 5 years:

Simple Interest: ₹50,000 interest → ₹1,50,000 total
CI (annual compounding): ₹61,051 interest → ₹1,61,051 total
CI (monthly compounding): ₹64,700 interest → ₹1,64,700 total

The gap widens significantly over longer periods, which is why compound interest is almost always preferable for long-term savings and investments.

Typical Indian use cases

Personal loans from moneylenders or NBFCs (often quoted as flat/simple rate)
Gold loans — typically charged on a simple interest basis
Short-term trade credit and supplier financing
Recurring Deposits (RDs) — interest is calculated simply on each instalment

Flat rate vs reducing balance — a critical difference

Many personal loans from banks and NBFCs are advertised with a “flat rate” of interest. A flat rate of 10% per annum sounds similar to a 10% reducing-balance rate, but it is not. In a flat rate loan, interest is calculated on the entire original principal throughout the tenure, even as you repay it. This effectively doubles the true cost of borrowing. A flat rate of 10% roughly equates to an effective reducing-balance rate of 18–19%. Always ask lenders for the reducing-balance rate or APR (Annual Percentage Rate) for a fair comparison.

Simple interest in savings and deposits

Some savings instruments pay out interest periodically rather than reinvesting it. Post Office Monthly Income Scheme (POMIS) pays interest monthly at a fixed rate on the principal — this is effectively simple interest. Senior Citizen Savings Scheme (SCSS) pays quarterly. These are appropriate for retirees who need regular income rather than capital growth. If you can reinvest the interest payments, compound interest instruments (FDs with compounding, PPF, equity) deliver better long-term growth.

How to use the compound interest comparison

This calculator includes a compound interest comparison panel showing how much more you would earn (or pay) with compounding at the same rate and period. The gap is small for short durations (1–2 years) but grows dramatically over 5–10 years. Use this comparison when deciding between a simple-interest savings account and a reinvestment plan — even a small compound interest advantage multiplies significantly over time due to the exponential nature of compounding.