Simple Interest Calculator

Simple interest refers to interest calculated only on the original principal, and not on any interest earned in earlier periods. Hence, the interest for every year stays the same as long as the principal and the rate do not change. For example, ₹1,00,000 at 8% a year earns ₹8,000 in the first year, and the same ₹8,000 for every next year.

A simple interest calculator is an online tool that applies this rule for you. You enter the principal, rate of interest, and time, and the calculator returns the interest earned and the total amount within seconds. It removes the need to convert months or days into years by hand, which is where most errors in manual working occur.

Simple interest is common in many everyday financial products in India. The Senior Citizens' Savings Scheme pays interest of 8.2% a year every quarter1, and the Post Office Monthly Income Scheme pays 7.4% a year every month2. Since the interest is paid out and not added back, the income on such schemes works the same way as simple interest. Some short loans, gold loans with bullet repayment and loans quoted on a flat rate also use simple interest.

A simple interest loan calculator can, therefore, help borrowers to check the cost of such loans. However, the figure shown depends on the method the lender actually follows; so, it should be compared with the loan documents.

The simple interest calculator on this page needs three basic inputs, and a fourth option for loans. Each input changes the result; so, it is worth entering figures that match your deposit or loan exactly.

For example, the inputs are as follows:

• Principal amount: The sum you invest or borrow, such as ₹1,00,000.
• Annual rate of interest: The yearly rate in percent, such as 8%.
• Time period: The duration in years, months or days, as per the product.
• Loan tenure for EMI (optional): The number of months over which a flat rate loan will be repaid.

Once you enter these details, the calculator shows the interest for the period and the total amount, which is the principal plus interest. When the loan option is used, the simple interest EMI calculator also shows the monthly instalment on a flat rate basis.

Let's assume you enter ₹1,00,000 at 8% a year for 3 years. The calculator would show interest of ₹24,000 and a total amount of ₹1,24,000. If you change the time to 18 months, the interest would fall to ₹12,000, as the tool converts months into years before applying the rate.

The calculator assumes that no interest is added back to the principal during the period. Where a product compounds interest, such as a cumulative fixed deposit, the result from this tool would understate the actual return.

The simple interest formula multiplies the principal, rate of interest, and time, and divides the result by 100. A simple interest formula calculator uses this same relationship, and only changes the way time is expressed. In the formulas below, P is the principal, R is the annual rate in percent, and T is the time in years. The time in months is m, the time in days is d, and the number of EMIs is n.

Note that the above table depicts an example and is for reference purpose only.

The month and day versions are simply the year formula with time converted. Dividing by 1,200 is the same as dividing by 100 and then by 12, and dividing by 36,500 is the same as dividing by 100 and then by 365. Some lenders use a 360 day year for day based interest, and, in such a case, the divisor would be 36,000.

Suppose a person borrows ₹5,00,000 at 12% a year for 8 months. Using the month formula, the interest is ₹5,00,000 × 12 × 8 ÷ 1,200, which comes to ₹40,000. The total amount payable would be ₹5,40,000, and the monthly interest alone would be ₹5,00,000 × 12 ÷ 1,200, or ₹5,000.

The flat rate EMI formula spreads the full principal and the full interest equally across all instalments. This is different from the reducing balance method used by most bank loans, and the difference is explained in the next sections.

This can be broken into three steps. The time period should first be expressed in the same unit the formula uses, that is years, months, or days. The principal is then multiplied by the rate and time, and the result is divided by the matching divisor. Adding this interest to the principal gives the total amount payable or receivable.

The following are some common cases:

Note that the above table depicts an example and is for reference purpose only.

The 90 day example also shows that the year basis can change the answer. Suppose the lender counts 365 days in a year, then ₹2,00,000 at 9% for 90 days would earn about ₹4,438. On a 360 day basis, the interest on the same deposit would be ₹4,500, which is about ₹62 more.

Let's assume a senior citizen puts ₹30 lakh in the Senior Citizens' Savings Scheme at 8.2% a year. The interest for one year would work out to ₹30,00,000 × 8.2 × 1 ÷ 100, which is ₹2,46,000. This amount is paid in four quarterly instalments of ₹61,500 each, and the principal of ₹30 lakh remains the same for the full term.

A simple interest formula calculator can save time once the method is understood, particularly for odd periods such as 17 months or 250 days. However, it is wise to work out one figure by hand, so that any error in the units entered can be noticed early.

The simple interest formula can also be rearranged to find any one value, provided the other three are known. This may be useful when the interest earned on a deposit or charged on a loan is known, but the rate, the time or the original sum is not. The same rearrangement also tells you how many years simple interest takes to double an amount.

The following is a rearrangement along with an example:

Note that the above table depicts an example and is for reference purpose only.

Under simple interest, an amount doubles when the total interest becomes equal to the principal. Putting SI equal to P in the formula gives T = 100 ÷ R. Hence, money would take 12.5 years to double at 8% a year, and 10 years at 10% a year.

Suppose a lender says that a loan of ₹2,00,000 will carry interest of ₹36,000 over 2 years. The rate formula would then give R = 36,000 × 100 ÷ (2,00,000 × 2), which works out to 9% a year on a flat basis. Knowing how to calculate simple interest in reverse can help a borrower check the quoted cost before signing the loan papers.

It should be noted that a rate worked out this way is only a flat rate. It does not reflect the actual cost of a loan repaid through EMIs. The borrower keeps paying interest on the full original sum, even after part of the principal has been repaid.

Simple interest is calculated only on the principal. Compound interest, on the other hand, is calculated on the principal as well as on the interest that has already been added to it. For one year with annual compounding, the two methods give the same figure. From the second year onwards, compound interest pulls ahead because the interest of each year starts earning interest too.

The following is a comparison between the two on ₹1 lakh at 8% a year, using a simple interest calculator and annual compounding:

Note that the above table depicts an example and is for reference purpose only.

By the end of 20 years, compound interest earns a little more than twice the simple interest on the same sum. At 8%, an amount doubles in 12.5 years under simple interest, whereas annual compounding doubles it in just over 9 years. The gap, therefore, matters the most for goals that are many years away, such as retirement, and understanding what retirement planning involves often starts with this difference.

Let's assume two persons invest ₹1 lakh each at 8% for 10 years. The first withdraws the interest every year, which is the same as earning simple interest, and has ₹1,80,000 in all at the end. The second leaves the interest invested and ends up with ₹2,15,892. Investors with long-term goals may use a retirement planning calculator to see the effect of compounding on the corpus, and may review investment plans depending on their risk profile.

For a borrower, the same effect works against them. If unpaid interest is added to the loan balance, the loan would cost more than a simple interest loan taken for the same period.

Most errors in simple interest arise from the units and labels used and not from the formula as such. A simple interest formula calculator can prevent many of these errors, though they may still happen if the inputs are entered incorrectly or the result is misread. Knowing how to calculate simple interest correctly, therefore, includes knowing where such mistakes usually occur.

Note that the above table depicts an example and is for reference purpose only.

Among these, confusing a flat rate with a reducing balance rate generally costs a borrower the most. On a loan of ₹3,00,000 at 10% flat for 3 years, the interest comes to ₹90,000. The same loan at 10% on a reducing balance would cost only about ₹48,486. As per an RBI circular issued in April 2024, lenders are required to provide a Key Fact Statement with the annual percentage rate (APR) for all retail and MSME loans. This requirement has applied from 1 October 2024.3 The APR is therefore a useful figure for comparing loans that are quoted in different ways.

A quick manual check after using the calculator can also help. For instance, suppose the tool shows ₹4,438 for ₹2,00,000 at 9% over 90 days, then working out 2,00,000 × 9 × 90 ÷ 36,500 should give the same result. If the two figures differ by a large amount, the inputs may have been entered in the wrong unit or on the wrong year basis.

A simple interest calculator works out the interest on the original principal using P × R × T ÷ 100, and shows the total amount payable or receivable. It may be used for deposits that pay out interest at regular intervals, short term loans, bullet repayments and flat rate EMIs. However, the result would be accurate only if the time is entered in the correct unit and the right year basis is applied.

Since simple interest remains the same in every period, it is easy to predict and compare. Compound interest grows much faster over longer periods, and this matters for savers as well as borrowers. A flat rate loan may also appear cheaper than it actually is, so the effective rate or the APR should be checked before taking the loan.

All examples on this page are illustrations based on assumed rates. The actual interest would depend on the terms of the deposit or loan.