Simple Interest Calculator
Work out simple interest and total amount for any principal, rate and time period, including months and days.
The simple interest calculator works out the interest earned or owed on a principal amount at a fixed annual rate for a specific period. Unlike compound interest, the interest here is always calculated on the original principal, which makes it easy to predict and understand.
How to use the calculator
- Enter the principal — the money being borrowed or invested.
- Set the annual interest rate in percent.
- Choose the time period and its unit — years, months or days.
- Press Calculate Interest to see the interest and the total amount payable or receivable.
This is handy for checking short-term personal loans between friends, education loan interest during the study period, or the interest on a simple-interest fixed deposit.
Simple interest formula
Where P is the principal, R is the annual interest rate and T is time in years. The total amount is simply A = P + SI. For months the calculator uses T = months ÷ 12, and for days it uses T = days ÷ 365.
Worked example
₹1,00,000 deposited at 8% p.a. for 3 years
SI = 1,00,000 x 8 x 3 / 100 = ₹24,000.
Total amount = 1,00,000 + 24,000 = ₹1,24,000.
Compare this with compound interest on the same deposit: the interest would be higher because each year's interest earns interest in the following years.
Who should use this calculator
- Anyone checking interest on a short-term loan or a loan between individuals.
- Borrowers working out the interest-only period on an education loan during the moratorium.
- Savers comparing a simple-interest deposit against a compounding one over the same period.
- Students learning the difference between simple and compound interest with a concrete example.
Common mistakes to avoid
- Using simple interest for a long-term loan. Home, car and personal loans are calculated on a reducing balance. Simple interest on the original amount always produces a much larger interest figure than the loan actually charges.
- Confusing a flat rate with an effective rate. A loan advertised at a 10% flat rate costs roughly 18% a year in reducing-balance terms. Always ask which basis a rate is quoted on.
- Getting the day count wrong. Some products use a 365-day year and others 360. On large amounts over long periods the difference is real, so check the convention in the agreement.
- Forgetting the time unit. Three months is 0.25 years, not 3. Entering the period in the wrong unit scales the interest by twelve.
- Comparing simple and compound products at the same headline rate. Ten percent simple and ten percent compounding are not the same, and the gap widens every year.
Where simple interest is actually used
Simple interest is not obsolete. It shows up in short-term borrowing, in interest-only periods, in some gold and car loan quotes, and in informal lending. It is also the basis for savings account interest, which banks calculate daily on the balance and credit quarterly.
The important distinction is between a flat rate and a reducing balance. Flat-rate interest is simple interest on the entire original amount, so a ₹1,00,000 loan at a 10% flat rate for two years charges ₹20,000 regardless of how much you repay along the way. On a reducing-balance basis the same loan would cost far less, because interest is charged only on the outstanding balance. That is why a flat rate of 10% feels nothing like a reducing-balance rate of 10%.
Simple interest terms explained
- Principal
- The original amount borrowed or deposited, on which interest is calculated.
- Flat rate
- Interest charged on the full original amount for the whole period, regardless of repayments made along the way.
- Reducing balance
- Interest charged on the outstanding balance, so it falls as the loan is repaid. This is how almost all modern loans work.
- Day count convention
- Whether the year is treated as 365 or 360 days. It changes the interest on short, large loans.
- Maturity value
- The principal plus the total simple interest at the end of the period.
Frequently asked questions
What is the difference between simple interest and compound interest?
Simple interest is calculated only on the original principal every period, so interest does not earn further interest. Compound interest adds each period’s interest back to the principal, so your money grows faster over time. Simple interest is commonly used for short-term loans and some fixed deposits.
How is simple interest calculated for months and days?
When the time period is in years, interest = principal x rate x years / 100. For months, divide by 12, and for days the calculator uses a 365-day year, i.e. principal x rate x days / 36500. Some banks use a 360-day year for certain products, so check your lender’s day-count convention.
Where is simple interest commonly used?
Simple interest is used for many short-term loans, some auto loans, education loans and certain fixed deposit products. Many banks also calculate savings account interest on a daily simple-interest basis. Compound interest is the norm for most long-term loans and investments like mutual funds.