Simple Interest Calculator
Calculate interest, total amount, and time period for any simple interest scenario
What is Simple Interest?
Simple Interest (SI) is the most straightforward way to calculate interest — you earn interest only on the original principal, not on any previously accumulated interest. The formula is:
Simple Interest = (Principal × Rate × Time) ÷ 100
For example: You deposit ₹1,00,000 at 8.5% p.a. for 3 years. SI = (1,00,000 × 8.5 × 3) ÷ 100 = ₹25,500. Your total at the end = ₹1,25,500.
Simple Interest vs Compound Interest
This is the most important distinction in all of personal finance. In simple interest, your ₹25,500 interest in Year 1 doesn't earn anything in Year 2 — only the original ₹1,00,000 keeps earning. In compound interest, the Year 1 interest of ₹8,500 itself earns interest in Year 2, so your Year 2 base is ₹1,08,500.
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Base for calculation | Always original principal | Principal + accumulated interest |
| Growth pattern | Linear (straight line) | Exponential (curve) |
| ₹1L at 8% for 10 years | ₹1,80,000 | ₹2,15,892 |
| Where used | Short-term loans, overdraft | FDs, PPF, SIPs, savings accounts |
| Good for | Borrowers (pay less) | Investors (earn more) |
Where is Simple Interest Actually Used in India?
- Overdraft accounts: Banks charge simple interest on the amount actually utilized in overdraft/cash credit accounts
- Short-term personal loans: Some NBFCs and moneylenders quote flat rates (simple interest) — this is the famous "flat rate vs reducing rate" trap
- Treasury bills (T-bills): Government T-bills use discount-based pricing equivalent to simple interest
- Post Office MIS (on maturity residual): If you don't withdraw a matured MIS account, post office credits simple interest at savings rate for up to 2 years
- Loans against FDs: Some banks charge simple interest on loans against fixed deposits
The Flat Rate Trap — A Warning
When a lender says "12% flat rate" on a personal loan, they mean simple interest on the original principal for the full tenure — even though you're repaying the loan monthly. The effective rate (equivalent reducing balance rate) is approximately double the flat rate. So "12% flat" is actually about 21-22% effective interest. Always ask for the reducing balance rate before taking any loan.
| Stated Flat Rate | Actual Effective Rate (approx) |
|---|---|
| 8% flat | ~14.4% |
| 10% flat | ~18.0% |
| 12% flat | ~21.5% |
| 15% flat | ~26.5% |