Simple Interest Calculator
Calculate simple interest on deposits and loans
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About Simple Interest Calculator
Simple Interest (SI) is the interest calculated on the original principal amount throughout the loan or investment period. Unlike compound interest, simple interest doesn't earn interest on interest - it's calculated only on the principal. This makes calculations straightforward and is commonly used for short-term loans, car loans, and some fixed deposits.
How is Simple Interest Calculated?
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Enter your Principal amount (the money you invest or borrow)
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Enter the annual Interest Rate (%)
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Enter the Time Period in years
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Formula: SI = (Principal × Rate × Time) / 100
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Total Amount = Principal + Simple Interest
Example:
If you invest ₹1 lakh at 8% interest for 5 years - you'll earn ₹40,000 as interest. Total amount after 5 years will be ₹1.4 lakhs!
Key Benefits
Easy to Calculate: Simple formula makes it easy to understand
Predictable Returns: Interest amount remains constant each year
Quick Estimation: Instantly know how much interest you'll earn
Transparent: No hidden compounding effects
Used in Loans: Many car loans and personal loans use simple interest
Frequently Asked Questions
What is the difference between Simple Interest and Compound Interest?
Simple Interest is calculated only on the principal amount, while Compound Interest is calculated on principal plus accumulated interest. For the same rate and period, compound interest always gives higher returns than simple interest.
Is simple interest better than compound interest?
For investors, compound interest is better as it gives higher returns. For borrowers, simple interest is better as it results in lower interest payments. Simple interest is more transparent and easier to calculate.
How is simple interest calculated monthly?
For monthly calculation, use: Monthly SI = (Principal × Rate × 1) / (100 × 12). If you need total interest for N months, multiply the monthly SI by N months.
Which investments use simple interest?
Simple interest is used in: Some fixed deposits, Short-term loans, Car loans, Personal loans (some), Government bonds, and Post office savings accounts.
Can I convert annual interest rate to monthly?
Yes! Monthly rate = Annual rate / 12. For example, 8% annual rate = 0.67% per month. However, this gives you the monthly rate, not monthly compounding.
What is the formula for simple interest?
SI = (P × R × T) / 100, where P = Principal, R = Rate of interest per annum, T = Time period in years. Total Amount = P + SI
Is EMI calculated using simple interest?
No, most EMIs use reducing balance method which is similar to compound interest. However, some loans like car loans from certain lenders may use simple interest or flat rate method.
How much interest will I earn on ₹1 lakh at 10% for 3 years?
Using SI formula: (1,00,000 × 10 × 3) / 100 = ₹30,000. Your total amount after 3 years will be ₹1,30,000.
Can simple interest be calculated for days?
Yes! For days, use: SI = (P × R × D) / (100 × 365), where D is number of days. Some use 360 days instead of 365 for easier calculation.
Why do banks prefer compound interest over simple interest?
Banks prefer compound interest for deposits because it encourages long-term saving (higher returns for customers) and for loans because it generates more interest income for the bank. It also reflects the time value of money more accurately.
Is simple interest tax-free?
No, interest earned is added to your income and taxed as per your income tax slab. There's no difference in tax treatment between simple and compound interest - both are taxable.
Can I use simple interest calculator for loans?
Yes! This calculator works for both investments (deposits) and loans. For loans, the interest shown is what you'll pay extra. However, most modern loans use reducing balance or compound interest methods, not simple interest.