Worked example
Example with the default numbers — change them above.
Principal (amount): ₹1,00,000 · Interest rate (a year): 8% · Time: 3 yrs
₹1 L at 8% simple interest for 3 years earns ₹24,000, so you get back ₹1.24 L.
| Total amount | ₹1.24 L · ₹1 L plus interest |
|---|---|
| Simple interest | ₹24,000 · 24% of the principal |
| Interest every year | ₹8,000 · the same amount each year, because interest is never added back |
| If it compounded yearly | ₹1.26 L · ₹1,971 more than simple interest |
How the Simple Interest Calculator works
- Enter the principal, the yearly interest rate and the time in years. Use decimals for months: 0.5 is six months.
- The calculator multiplies the principal by the rate (as a decimal) and by the time to get the interest.
- It adds the interest to the principal for the total amount, and shows the same interest every year because nothing is added back.
- For comparison, it also grows the same principal with yearly compounding, so you can see how much interest on interest would add.
Simple interest
Interest = P × r × t
Total amount = P + Interest
P = principal (the original amount)
r = yearly interest rate as a decimal (8% is 0.08)
t = time in years (6 months is 0.5)Assumptions and limits
- Interest is worked out on the original principal for the whole term and is never added back to earn more interest.
- The rate is steady for the whole term and the time is measured in exact years, with no day-count rules.
- The compound figure uses yearly compounding with the same rate. Lenders and banks may compound more often, which would give a higher figure.
- No tax, fees or inflation are included.
Frequently asked questions
How do I calculate simple interest?
Multiply the principal by the yearly rate as a decimal and by the time in years: Interest = P × r × t. For ₹1,00,000 at 8% for 3 years, the interest is 1,00,000 × 0.08 × 3 = ₹24,000, and the total amount is ₹1,24,000. Enter your own numbers above to see yours instantly.
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal, so it adds the same amount every year. Compound interest is calculated on the principal plus the interest already added, so it grows faster over time. The longer the period and the higher the rate, the bigger the gap. The comparison bars above show the difference for your numbers.
Where is simple interest used in India?
Simple interest appears in short-term personal loans between people, some bonds and debentures that pay a fixed coupon on face value, and loans quoted at a flat rate. A flat rate applies interest to the original loan amount for the whole term, so the true cost is higher than the number suggests, because you repay the principal gradually.
How do I calculate simple interest for months or days?
Convert the time to years first. Divide months by 12 and days by 365. Six months is 0.5 years, nine months is 0.75 years and 45 days is about 0.123 years. Then use Interest = P × r × t. In this calculator, type the decimal into the Time field.
What happens to simple interest if I double the time or the rate?
It doubles too, because simple interest grows in a straight line with the principal, the rate and the time. Doubling any one of them doubles the interest, and doubling two of them quadruples it. Compound interest grows faster than that over long periods, since each year's interest also starts earning.
Can simple interest be higher than compound interest?
Only for periods under one year when compounding is yearly, because compound interest has not yet had a full period to add up. From one year onwards compound interest is equal or higher, and the difference grows with time. This calculator shows the yearly compound result next to the simple one so you can compare.
Sources
Logic and rates last verified on .
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