Enter your principal, rate, and time period. See the total interest, the final amount, and how the interest builds year by year.
Simple interest is the most transparent form of interest calculation. The amount charged or earned is the same every year for the entire period, calculated strictly on the original principal. No reinvestment, no compounding, no surprises. This Simple Interest calculator shows you the exact interest amount, the final total, and the year-by-year breakdown so you see how a flat 10% for 5 years actually works out in rupees.
Simple interest charges or earns the same fixed amount every year. On Rs.1 lakh at 10%, you pay or earn Rs.10,000 in year 1. Exactly Rs.10,000 in year 2. Exactly Rs.10,000 in year 5. The interest does not grow. It does not accumulate on itself. This makes simple interest easy to understand, easy to plan around, and often cheaper for borrowers than compound interest on the same rate. The catch for investors: that flat Rs.10,000 each year buys progressively less over time as inflation rises, and the overall return is lower than compound interest would deliver on the same principal over the same period.
A few situations where working this out before signing anything matters:
One formula, three variables:
SI = (P × R × T) / 100
What each variable means:
The total amount at the end: add SI to P and you have what you collect or owe.
Worked example: Rs.1,00,000 at 10% per annum for 5 years
Every year the same Rs.10,000 is added. Year 1: Rs.1,10,000. Year 2: Rs.1,20,000. Year 5: Rs.1,50,000. Flat, predictable, and exactly what you see on the chart above. At the same 10% with compound interest, the year-5 balance would be Rs.1,61,051, a Rs.11,051 difference purely from reinvesting the interest each year.
Simple interest is calculated only on the original principal for the entire duration. On Rs.10,000 at 5% for 3 years, the interest is Rs.500 every year and the total interest over three years is Rs.1,500. The amount repaid is Rs.11,500. Every year's interest is identical because the base never changes. There is no interest on interest. A borrower knows from day one exactly what the total cost will be, and that predictability is the real value of simple interest in short-term lending.
The difference shows up slowly at first and then dramatically. On Rs.1 lakh at 10% for 5 years: simple interest gives Rs.50,000 total interest, making the final amount Rs.1.5 lakh. Compound interest gives Rs.61,051 total interest, making the final amount Rs.1,61,051. The gap is Rs.11,051 over five years. Run the same comparison over 20 years at 10% and the gap becomes Rs.5.73 lakh versus Rs.3.73 lakh in total interest. Simple interest grows as a straight line; compound interest curves upward. For anything beyond 5 years, the curve beats the line by a margin that makes the method of calculation the most important variable in the calculation.
Gold loans from most banks and NBFCs use simple interest, which is part of why they are popular for short-term needs. Car loans from dealers often quote a flat rate, which is simple interest on the full principal rather than reducing balance, making them appear cheaper than they are. Government education loans for study abroad sometimes use a simple interest structure during the moratorium. Some short-duration personal loans and NBFC business loans use flat-rate simple interest for ease of calculation. Home loans, credit card debt, and most bank personal loans above 1 year all use compound interest on the reducing balance, which is the standard regulated structure for consumer credit in India.
When you choose a non-cumulative FD and take the interest monthly, quarterly, or annually, the bank is paying you simple interest on the principal. The principal earns a fixed percentage per year and that interest flows out to you without reinvesting. A Rs.1 lakh FD at 7% for 5 years earns Rs.7,000 per year or Rs.35,000 total over 5 years on a non-cumulative basis. The same Rs.1 lakh in a cumulative FD at 7% compounding quarterly earns Rs.40,388 over 5 years because the quarterly interest is reinvested. The Rs.5,388 difference is meaningful for large deposits. Choose non-cumulative only when you genuinely need the periodic cash flow for expenses.
The formula works for any time unit as long as the rate and time use the same period. For months, divide the number of months by 12 to convert to years, then apply the standard formula. Rs.50,000 at 12% for 9 months: T = 9 divided by 12 = 0.75 years. SI = (50,000 x 12 x 0.75) / 100 = Rs.4,500. Alternatively, use SI = (P x R x M) / (100 x 12) where M is months, which gives the same answer. For days, use SI = (P x R x D) / (100 x 365) where D is the number of days. Short-term loans and overdrafts often charge interest per day, so the daily version of the formula is useful for working out the exact cost of borrowing for a specific number of days.
Simple interest is better for borrowers because the total interest paid is lower than compound interest at the same rate and duration. On Rs.5 lakh at 10% for 10 years: simple interest charges Rs.5 lakh total in interest. Compound interest charges Rs.7.97 lakh. The borrower saves Rs.2.97 lakh by being on the simpler calculation. For lenders and investors, compound interest is better because the returns grow faster as earned interest generates its own returns. Banks understand this perfectly, which is why they offer compound interest on FDs (where you are the depositor and they owe you returns) and charge compound interest on most long-term loans (where you are the borrower and they earn from you).
This distinction catches many borrowers off guard. A flat-rate loan at 10% charges 10% on the original principal for the entire tenure regardless of how much you have paid back. A reducing-balance loan at 10% charges 10% only on the outstanding amount, which shrinks with every EMI. On a Rs.1 lakh loan for 2 years at 10%: flat rate charges Rs.20,000 in total interest. Reducing balance charges approximately Rs.10,579. The flat rate is nearly double. Car dealers and some NBFC loan officers commonly quote flat rates because the number looks lower. When a dealer tells you the interest is 9% per annum, ask whether it is a flat rate or a reducing balance rate. If flat, the effective reducing-balance equivalent rate is roughly 16 to 17%.
Rearranging the SI formula solves for any missing variable. To find the principal when you know the interest: P = (SI x 100) / (R x T). If you earned Rs.15,000 at 10% over 3 years, the principal was Rs.50,000. To find the rate: R = (SI x 100) / (P x T). If Rs.1 lakh produced Rs.8,000 in interest over 2 years, the rate was 4%. To find the time: T = (SI x 100) / (P x R). If Rs.1 lakh at 6% generated Rs.9,000 in interest, the deposit ran for 1.5 years. These rearrangements are useful when checking whether a loan agreement is charging the rate it claims, or when working out how long it takes to reach a specific total interest threshold.
Simple interest underperforms compound interest for investors over any duration beyond a few months. The reason is that earned interest sits idle rather than generating its own returns. On Rs.1 lakh at 10% for 10 years, simple interest returns Rs.1 lakh in total interest. Compound interest at the same rate returns Rs.1.59 lakh. That Rs.59,000 gap is not from investing more money. It is purely from reinvesting interest. For goals beyond 3 years, choosing a simple-interest product over a comparable compound-interest product is a meaningful financial disadvantage. For borrowers taking flat-rate loans, the disadvantage runs the other way: a flat-rate simple interest loan at 10% is genuinely more expensive than a reducing-balance loan at 10%, even though the rate looks identical.
In strict mathematical terms, negative simple interest is possible if the interest rate is negative. This has happened in the real world: the European Central Bank and the Bank of Japan both ran negative policy rates for extended periods, meaning commercial banks were charged for parking reserves. In those environments, depositors in some institutions also faced negative deposit rates. India has never experienced this. The RBI has maintained positive repo rates throughout its history, and the lowest deposit rates in India have still been positive nominal rates. In practical terms, what does sometimes go negative is the real return: if your FD earns 6% but inflation runs at 7%, the purchasing power of your principal is declining even though the nominal balance is growing.
Interest income is taxed as income from other sources at your applicable slab rate, whether it is simple or compound interest. The tax treatment does not change with the calculation method. Banks deduct TDS at 10% when the annual interest from a single institution crosses Rs.40,000, or Rs.50,000 for senior citizens. This threshold applies to the combined interest from all accounts and deposits at that bank. Submit Form 15G (or Form 15H for senior citizens) at the start of each financial year to avoid TDS if your total annual income is below the basic exemption limit. Senior citizens have an additional deduction available: Section 80TTB allows up to Rs.50,000 per year in interest income to be deducted from taxable income, applicable only under the old tax regime.
