Simple Interest Calculator
Calculate simple interest and the total amount, and compare it with compound interest.
Simple interest
Simple vs compound interest
| Method | Interest | Total amount |
|---|---|---|
| Simple interest | ₹24,000 | ₹1,24,000 |
| Compound (yearly) | ₹25,971 | ₹1,25,971 |
| Compound (quarterly) | ₹26,824 | ₹1,26,824 |
| Compound (monthly) | ₹27,024 | ₹1,27,024 |
Same principal, rate and time. Compound rows add interest to the balance at the frequency shown.
How it works
Simple interest is charged or earned only on the principal:
SI = P × r × t ÷ 100 · Total amount = P + SI
- P = principal
- r = interest rate, % per year
- t = time in years (months ÷ 12)
For the comparison, compound interest uses:
A = P × (1 + r ÷ (100 × n))n × t · CI = A − P
where n is how many times a year interest is added (1 yearly, 4 quarterly, 12 monthly).
Worked example
You lend or deposit ₹2,50,000 (2.5 lakh) at6% a year for 5 years.
- SI = ₹2,50,000 × 6 × 5 ÷ 100 = ₹75,000
- Total amount = ₹2,50,000 + ₹75,000 = ₹3,25,000
- With yearly compounding instead: (1 + 0.06)5 = 1.338226, so A = ₹2,50,000 × 1.338226 = ₹3,34,556 and CI = ₹84,556
- Compounding earns ₹9,556 more over 5 years.
Frequently asked questions
What is simple interest?
Simple interest is interest worked out only on the original amount (the principal). Unlike compound interest, the interest earned or charged is never added to the principal, so it does not earn interest of its own.
What is the simple interest formula?
Simple interest = P × r × t ÷ 100, where P is the principal, r is the interest rate per year and t is the time in years. For example, ₹100 at 10% for 1 year gives ₹100 × 10 × 1 ÷ 100 = ₹10, so you pay or receive ₹110 in total.
How is simple interest different from compound interest?
With compound interest, interest is added to the balance and then earns interest itself. Over time this makes a big difference: ₹2,50,000 at 6% for 5 years earns ₹75,000 as simple interest but ₹84,556 with yearly compounding. The comparison table above shows this for your own numbers.
When are simple and compound interest the same?
For exactly one year with interest compounded once a year, both give the same amount. For longer periods, or more frequent compounding, compound interest is higher.
Do banks charge simple interest on loans?
RBI's Financial Awareness Messages booklet notes that banks do not offer simple interest rate loans. Bank loans such as home and car loans charge interest on the reducing balance; use the EMI calculator for those. Simple interest is still useful for quick estimates and for understanding how interest works.
How do I calculate simple interest for months?
Convert the months to years by dividing by 12, or choose "Months" in the calculator. For example, ₹50,000 at 7.5% for 18 months is ₹50,000 × 7.5 × 1.5 ÷ 100 = ₹5,625.
What if a lender quotes a monthly interest rate?
Always convert it to a yearly rate before comparing. As RBI's Financial Awareness Messages booklet points out, a rate of 2% per month works out to 24% per year. Enter the yearly rate in this calculator.