What Is Simple Interest?
Simple interest is interest calculated only on the original principal amount, at a fixed annual rate, for the full time period. It does not compound.
Unlike compound interest, simple interest never earns interest on interest. The amount you earn or owe each year stays exactly the same, since it is always calculated against the same original principal.
This makes simple interest predictable and easy to verify by hand, which is why it remains common on short-term loans and certain bonds in India, even though most savings products now use compounding.
Simple Interest Formula: How to Calculate It
Simple Interest (I) = P x R x T / 100
Total Amount (A) = P + I| Variable | Meaning |
|---|---|
| P | Principal amount invested or borrowed |
| R | Annual interest rate, as a percentage |
| T | Time period, in years |
| I | Simple interest earned or payable |
Worked example: a principal of Rs 1,00,000 at 8% annual simple interest for 5 years earns I = 1,00,000 x 8 x 5 / 100 = Rs 40,000. The total amount at the end of 5 years is Rs 1,40,000.
A smaller textbook-style example, the kind that shows up in class 7 to 10 maths: Rs 15,000 invested at 5% for 2 years earns I = 15,000 x 5 x 2 / 100 = Rs 1,500, for a total amount of Rs 16,500. The formula does not change with the size of the numbers.
Simple Interest Formula in Excel
Enter the principal, rate, and time in separate cells, then multiply them directly. There is no dedicated Excel function for simple interest, unlike compound interest's FV function.
| Result | Excel Formula |
|---|---|
| Simple interest | =Principal*Rate*Years/100 |
| Total amount | =Principal+(Principal*Rate*Years/100) |
Reverse Simple Interest Calculator: Solve for Rate, Time, or Principal
A reverse calculator rearranges the same formula to find the rate, the time period, or the principal itself, when the interest earned is already known. Pick what you want to solve for and enter the other three values.
T = 100 x I / (P x R)
P = 100 x I / (R x T)
Worked example: if Rs 1,00,000 earned Rs 40,000 interest over 5 years, the rate is R = 100 x 40,000 / (1,00,000 x 5) = 8% per annum. The same rearrangement finds the time period or the principal if either is the unknown instead.
Daily, Monthly, and Annual Interest Calculation
The annual simple interest formula scales down directly for shorter periods, by substituting days or months for years in the same equation.
| Period | Formula |
|---|---|
| Daily interest | P x R x Days / (100 x 365) |
| Monthly interest | P x R x Months / (100 x 12) |
| Annual (yearly) interest | P x R x Years / 100 |
Some banks use a 360-day year convention on specific products instead of 365, which produces a marginally higher daily rate. Confirm which convention applies before relying on a daily figure for a real deposit or loan.
Simple Interest vs Compound Interest: What Is the Difference?
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus all previously accumulated interest, so the gap between the two widens every year.
| Method | Interest Earned | Total Amount |
|---|---|---|
| Simple interest | Rs 80,000 | Rs 1,80,000 |
| Compound interest (annual) | Rs 1,15,893 | Rs 2,15,893 |
Compounding earns roughly 45% more interest than simple interest at the same rate and tenure, purely from interest earning further interest each year. Run the same principal through the Compound Interest Calculator to compare exact figures at your own rate and tenure, or use the Simple and Compound Interest Calculator to see both totals side by side in one place.
Where Simple Interest Is Used in India
Simple interest appears most often on short-tenure or fixed-term products where the lender wants a predictable, easy-to-verify cost.
- Short-term personal loans: many NBFCs quote simple interest on loans under 12 months.
- Car loans: some lenders use a flat (simple interest style) rate rather than a reducing balance.
- Education loan moratorium: interest accrues as simple interest during the study period before EMIs begin.
- Microfinance and peer-to-peer lending: many small-ticket loans use simple interest for transparency.
- Late payment penalties: overdue balances on utility bills and some credit facilities accrue simple interest.
Most home loans and credit card balances instead use a reducing-balance method that behaves like compound interest. Check the EMI Calculator for those.
Bank Interest Calculator: Savings and FD Rates
Savings account interest in India is usually simple interest, calculated daily on the closing balance and credited quarterly. Fixed deposits generally compound instead, but the underlying comparison still starts from the same rate a bank quotes.
| Bank | Savings Account | 1-Year FD (General) |
|---|---|---|
| SBI | 2.50% | 6.25% |
| HDFC Bank | up to 3.5%* | up to 7.4%* |
*HDFC figures are the top of the bank's published range across balance slabs and tenures, not a flat rate. Rates change without notice; confirm the current published rate before depositing. Run the exact deposit through the FD Calculator.
Loan Interest Calculator: Which Loans Use Simple Interest
A loan quoted as simple or flat interest charges the same interest amount every period, calculated on the original loan amount rather than the reducing balance.
This makes a flat-rate loan cost more than its quoted rate suggests, since a reducing-balance loan of the same nominal rate charges less interest as the balance falls.
Always convert a flat rate to its effective reducing-balance rate before comparing loan offers, or run both through the Loan Calculator.
Tax on Interest Income: TDS Under Section 194A
Interest from savings accounts, fixed deposits, and recurring deposits is taxable at your income tax slab rate under "Income from Other Sources". Banks deduct TDS once interest from that bank crosses a threshold in a financial year, per Section 194A of the Income Tax Act.
| Payer / Depositor | Threshold | TDS Rate |
|---|---|---|
| Bank or post office, individual under 60 | Rs 50,000/year | 10% |
| Bank or post office, senior citizen (60+) | Rs 1,00,000/year | 10% |
| Other payers (non-bank) | Rs 10,000/year | 10% |
The Finance Bill 2025 raised these thresholds from Rs 40,000 and Rs 50,000 respectively, effective 1 April 2025. TDS rises to 20% if PAN is not linked to the account. TDS is not the final tax; report the full interest amount in your return and claim the TDS credit.
Limitations of This Calculator
No compounding: this calculator assumes pure simple interest. Most savings, FD, and RD products actually compound, so use the Compound Interest Calculator for those.
Flat annual rate: it applies one rate for the full period. A real loan or deposit rate can change mid-term if it is linked to a floating benchmark.
Pre-tax figures by default: TDS is only reflected once you set a TDS rate in More Settings. Actual tax owed depends on your total income and slab.
How to Use This Calculator
- Enter the principal: the amount you are depositing, investing, or borrowing.
- Enter the rate: the annual interest rate as a percentage.
- Set the time period: the number of years the amount will earn or accrue interest.
- Open More Settings for TDS: set a TDS rate to see net interest after tax deduction.
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Frequently Asked Questions
Disclaimer: All calculations on this page are indicative only. Bank rates, TDS thresholds, and tax rules change and may not reflect the figures shown here at the time you use this calculator. This calculator is for educational and planning purposes only and does not constitute financial advice. Consult a SEBI-registered investment adviser or a chartered accountant before making financial decisions.