Simple Interest Calculator
Calculate SI with step-by-step working. Find interest, principal or rate using SI = P × R × T / 100.
Simple Interest Formula
Simple interest is the most basic form of interest calculation, used in many short-term loans, government bonds, and some fixed deposits.
When is simple interest used?
Many personal and vehicle loans charge simple interest for tenures under 1 year. Car loans and some microfinance products use flat (simple) interest, which effectively doubles the actual rate.
Government Treasury Bills (91-day, 182-day, 364-day) use simple interest for their return calculations. NSC uses simple interest for the first year but compounds thereafter.
When a fixed deposit pays interest monthly or quarterly instead of compounding it, the effective return is simple interest. Cumulative FDs are more beneficial due to compounding.
Frequently asked questions
What is the formula for simple interest?
Simple Interest (SI) = Principal (P) × Rate (R) × Time (T) / 100. The total amount at maturity is A = P + SI. You can rearrange to find any variable: P = SI × 100 / (R × T), R = SI × 100 / (P × T), T = SI × 100 / (P × R).
How is simple interest different from compound interest?
In simple interest, the interest is always calculated on the original principal only. In compound interest, interest is added to the principal at regular intervals and the next period's interest is calculated on the new, larger amount. Over time, compound interest grows significantly faster.
Does any bank in India offer simple interest on FDs?
Most banks offer both options: "simple interest FD" where interest is paid out periodically (monthly/quarterly), and "cumulative FD" where interest compounds. The cumulative FD always yields more due to compounding. RD (Recurring Deposits) always use compound interest.
How do I convert simple interest rate to effective compound rate?
There is no direct conversion as they work differently over time. As a rough guide, a simple interest rate of 8% for 5 years gives the same total return as a compound interest rate of about 6.3% (annual compounding). For shorter periods, they are very similar.
Is EMI calculated on simple or compound interest?
EMIs use the reducing balance method, which is a form of compound interest applied monthly. The "flat rate" some dealers quote is simple interest, but it is misleading — a flat rate of 8% is equivalent to a reducing balance rate of approximately 14–15%. Always ask for the reducing balance rate.