Simple Interest Formula

Simple interest is a method of calculating interest charged on fixed deposit, savings account, and a loan. It is calculated on the principal amount. Simple interest is when an interest rate is charged on the principal amount on a daily/monthly/quarterly/annual basis and does not add any interest rate on the interest amount gathered on the principal amount.

Where Is the Concept of Simple Interest Used?

Simple interest may be used in the following financial situations:

  • Borrowing money: In case of a loan, you will need to pay interest on the amount you have borrowed.
  • Lending money: In case of a savings account, fixed deposit , or recurring deposit, you will receive the amount in the form of interest on your principal.

However, banks, financial institutions, and professional lenders in India do not use simple interest. They use compound interest instead.

Simple Interest Formula

The formula for calculating simple interest is:

P x r x t ÷ 100

P = Principal

r = Rate of Interest

t = Term of the loan/deposit in years

This means that you are multiplying the principal amount with the rate of interest and the tenure of the loan or deposit. Make sure you enter the tenure in years and not months. If you are entering the tenure in months, then the formula will be:

P x r x t ÷ (100 x 12)

If you want to find the total amount – that is, the maturity value of a deposit or the total amount payable including principal and interest, then you can use this formula:

FV = P x (1 + (r x t))

Here, FV stands for Future Value. To get the interest payable or receivable, you can subtract the principal amount from the future value.

Let's give you some examples to understand how much you will earn on your deposits, or how much you will have to pay on your loan if your bank uses simple interest.

Simple Interest Calculation in Deposits

Example 1: If you invest Rs.50,000 in a fixed deposit account for a period of 1 year at an interest rate of 8%, then the simple interest earned will be:

50,000 x 8 x 1 ÷ 100 = Rs.4,000

The interest you will receive at the end of the 1-year tenure will be Rs.4,000. Therefore, the maturity amount of the FD will be Rs.54,000.

Example 2: If you invest Rs.8 lakh in a fixed deposit account for a period of 5 years at an FD interest rate FD interest rate of 6.85%, then the simple interest earned will be:

8,00,000 x 6.85 x 5 ÷ 100 = Rs.2,74,000

The interest you will receive at the end of the 5-year tenure will be Rs.2.74 lakh. Therefore, the maturity amount of the FD will be Rs.10.74 lakh.

Simple Interest Calculation in Loans

Example 1: Say you borrowed Rs.5 lakh as personal loan from a lender on simple interest. The interest rate is 18% and the tenure is 3 years. The interest you will end up paying to the bank will be:

5,00,000 x 18 x 3 ÷ 100 = Rs.2,70,000

The interest you will be paying over the period of 3 years will be Rs.2.7 lakh. Therefore, the total repayment you will make to the bank will be Rs.7.7 lakh. On a monthly basis, this would come up to around Rs.21,389.

Example 2: Say you took a car loan on simple interest. The principal amount is Rs.12 lakh, the interest rate is 7%, and the tenure is 5 years. The interest you will end up paying will be:

12,00,000 x 7 x 5 ÷ 100 = Rs.4,20,000

The interest you will be paying over the period of 5 years will be Rs.4.2 lakh. Therefore, the total repayment you will make will be Rs.16.2 lakh. On a monthly basis, this would come up to around Rs.45,000.

Difference Between Simple and Compound Interest

Simple Interest

Compound Interest

It is calculated on the total principal amount for the total tenure.

It is calculated on the principal amount periodically (monthly, quarterly, half-yearly or annually).

The accumulated interest on the principal is not added to the calculation of interest for the next period.

The interest that you accumulate periodically is added to the calculation of interest for the next period.

The interest earned/paid will not increase even if the calculation is done periodically.

The interest earned or paid will increase if the frequency of interest generation or payment is more.

The accumulation of interest is slow.

The accumulation of interest is fast since you get interest on the growing interest amount as well.

Simple interest will not earn you enough for savings and investments but will benefit you if you take a loan.

Compound interest will earn you more in savings and investments but will be costlier on a loan.

It is not good for wealth creation.

It is good for wealth creation.

It is beneficial to the borrower but not to the lender. You will be paying less on a loan that is taken on simple interest.

It is beneficial to the lender but not to the borrower. You will be paying more on a loan that is taken on compound interest.

Simple interest is easy to calculate.

Compound interest is complicated to calculate.

If you get any loan offered with simple interest, it'll save you a lot on repayments. But if you are depositing a money on simple interest, then you will not earn as much as compound interest can give you. So check the type of interest offered on a financial product before taking it.

Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.

Simple Interest Formula Reviews

Page 1 of 50 1 2 3 4 5
  • Oriental Bank of Commerce Fixed Deposit
    "Good Scheme"
    ORIENTAL BANK OF COMMERCE
    0.5 5.0/5 "Blown Away!"
    Since last 15 years, i have a account with Oriental bank of commerce thats the reason i have invested the money in fixed deposit with the same bank. I have invested the amount of Rs. 11 lakhs. They are giving the interest rate of 6.5%. There is no locking period but i have chosen the duration of 1.5 years. There is no additional charges deducted for this fixed deposit.
    Was this review helpful? 1
    , bulandshahr
    Reviewed on Dec 03, 2019
  • Post Office
    Post Office Fixed Deposit
    "Good Service"
    INDIA POST OFFICE
    0.5 4.0/5 "Great!"
    Interest rate is very low in Indian post office Fixed deposit scheme because they are providing only 8.5%. I have chosen this office because of the child benefits. I have invested the money of Rs. 1.5 years. Its 3 years lock in period. Overall, I'm satisfied with the service provided by post office employees.
    Was this review helpful? 3
    , parvathipuram
    Reviewed on Dec 03, 2019
  • SBI Fixed Deposit
    "Good bank for Fixed Deposit"
    STATE BANK OF INDIA
    0.5 4.0/5 "Great!"
    I have invested the money in SBI for a fixed deposit and based on my wife recommendation i have chosen it. They are providing the interest rate of 7.25%. They have option to select the lock in period in that i have chosen 5 years. We had visited their branch and the response was good.
    Was this review helpful? 10
    , mumbai
    Reviewed on Nov 12, 2019
  • HDFC Bank Fixed Deposit
    "Good one"
    HDFC BANK
    0.5 4.0/5 "Great!"
    Its easy accessible and to redeem so that i have invested the money in Fixed Deposit with HDFC BANK. I have invested the money of Rs. 2.5 lakhs and they have provided me a interest rate of 7.5%. There is no locking period. I didn't got any additional charges till now.
    Was this review helpful? 4
    , hyderabad
    Reviewed on Nov 12, 2019
  • Post Office Fixed Deposit
    "Safety deposit"
    INDIA POST OFFICE
    0.5 5.0/5 "Blown Away!"
    I have paid the money of Rs. 4.5 lakhs as a fixed deposit in the Indian post office. For the safety purpose, i have chosen the post office account. They are offering me a interest rate of 7.9%. There is a lockin period of 5 years. If i withdraw the money in 1 year, they will reduce the interest rate of 2% and after 3 years, its 1%.
    Was this review helpful? 26
    , jaipur
    Reviewed on Nov 08, 2019
  • Central Bank of India Fixed Deposit
    "Good Bank"
    CENTRAL BANK OF INDIA
    0.5 4.0/5 "Great!"
    Interest rates are less in Central Bank of India so I had taken a fixed deposit. I have invested the money of Rs. 1 lakh in my wife's name. Branch is near from my place so I have chosen this bank. Yearly once, I get the money of Rs. 6,765 for the interest. There is a locking period of 1 year.
    Was this review helpful? 1
    , tirupur
    Reviewed on Nov 06, 2019
  • ICICI Bank Fixed Deposit
    "Customer centrice & User friendly app"
    ICICI BANK
    0.5 4.0/5 "Great!"
    I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
    Was this review helpful? 6
    , nasik
    Reviewed on Oct 15, 2019
  • SBI Fixed Deposit
    "Good"
    STATE BANK OF INDIA
    0.5 3.0/5 "Satisfactory"
    I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
    Was this review helpful? 8
    , tirupati
    Reviewed on Oct 15, 2019
  • SBI Fixed Deposit
    "Interest charges are good. "
    STATE BANK OF INDIA
    0.5 3.0/5 "Satisfactory"
    I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
    Was this review helpful? 16
    , kolkata
    Reviewed on Oct 01, 2019
  • Dena Bank Fixed Deposit
    "Good plan for senior citizen"
    DENA BANK
    0.5 2.0/5 "Expected more"
    I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
    Was this review helpful? 5
    , new delhi
    Reviewed on Sep 24, 2019
  • Axis Bank Fixed Deposit
    "Interest should be increased for FD"
    AXIS BANK
    0.5 3.0/5 "Satisfactory"
    I have opt for fixed deposit for the tax saving purpose because I have chosen five years tenure with AXIS Bank, still its going on. Only once I Invested my money it has the locking period of five years. I have option to check my transactions through mobile app. But I have concern about the interest rate is very lesser for this FD.
    Was this review helpful? 8
    , hyderabad
    Reviewed on Sep 19, 2019
  • SBI Fixed Deposit
    "FD process should be simpler"
    STATE BANK OF INDIA
    0.5 1.0/5 "Really Bad"
    I had fixed deposit with SBI then I withdrawn the amount, I done Rs. 3 lakhs of investment on my daughter name then I taken the liquidity to purchase the land, at the time I struggled a lot to take that money because the process was difficult to withdrawn the money after seven months of tenure.
    Was this review helpful? 22
    , madurai
    Reviewed on Sep 03, 2019
  • Union Bank of India Fixed Deposit
    "Not good"
    UNION BANK OF INDIA
    0.5 3.0/5 "Satisfactory"
    I had a Fixed Deposit with Union Bank of India and its closed 18 to 19 months due to personal reasons. I am doing investment but my experience is not good with FD account. In my home town, there is no other banks so just decided to go with this bank. The returns are good.
    Was this review helpful? 9
    , bangalore
    Reviewed on Aug 28, 2019
  • HDFC Bank Fixed Deposit
    "Good to go with HDFC"
    HDFC BANK
    0.5 5.0/5 "Blown Away!"
    I have one FD with HDFC, I deposited Rs. 1 lakh, I was opt for 45 days of tenure. Finally I got 6.25% of interest for 45 days. It won't cover the tax, if we need tax benefits we should go for five years term. I can track the details through netbanking, on the maturity date the amount credits automatically in the account. Even the notification can customized.
    Was this review helpful? 18
    , bangalore
    Reviewed on Aug 27, 2019
  • HSBC Bank Fixed Deposit
    "wrong calculation of interest rates"
    HSBC BANK
    0.5 0.5/5 "Unacceptable"
    HSBC staff wrongly pre closed my fixed deposit .. and calculated the interest rates wrongly and when asked them for clarification never got back .. even after following up with them repeatedly for more than 3 months.. would highly recommend not using their services.
    Was this review helpful? 5
    , visakhapatnam
    Reviewed on Aug 24, 2019
  • SBI Fixed Deposit
    "Excellent"
    STATE BANK OF INDIA
    0.5 5.0/5 "Blown Away!"
    I do have a Fixed deposit account with SBI and it was carried out by Mom and even I have account for my daughter. Its still running and they have Google application separately to access online. The returns are good. I am doing monthly investment and it was opened quite a long may be 4 years.
    Was this review helpful? 15
    , ahmedabad
    Reviewed on Aug 23, 2019
  • ICICI Bank Fixed Deposit
    "Good"
    ICICI BANK
    0.5 5.0/5 "Blown Away!"
    I just opened a Fixed Deposit with ICICI BANK and have not done any survey on this. I am account holder with them so it was easy to do FD account even they are providing 7% interest rate. The process is very user friendly and never faced any hassle. I could access this account via online.
    Was this review helpful? 10
    , new delhi
    Reviewed on Aug 21, 2019
  • Post Office Fixed Deposit
    "Good for future"
    INDIA POST OFFICE
    0.5 3.0/5 "Satisfactory"
    In post office rate of interest is higher for the fixed deposit when compared to the bank, I invested Rs. 5000 on monthly basis its comes in a year Rs. 60,000 after 5 years I got Rs. 3.75,000 I got Rs. 75,000 extra. The service is not comfortable if we have any relative who working there it would supportive or else difficult.
    Was this review helpful? 43
    , burdwan
    Reviewed on Aug 09, 2019
  • SBI Fixed Deposit
    "Good for future saving"
    STATE BANK OF INDIA
    0.5 5.0/5 "Blown Away!"
    I have FD with SBI, I have opt for one year term there is no such limitation for depositing the money. The interest rate is good for the FD, the online banking is convenient to take liquidity. They resolve the queries on time. Its most safe and secured.
    Was this review helpful? 9
    , visakhapatnam
    Reviewed on Aug 08, 2019
  • SBI Fixed Deposit
    "Average"
    STATE BANK OF INDIA
    0.5 4.0/5 "Great!"
    I have selected state bnak of indis fixed deposit amount 1 lakhs , Tenure 5 years and Rate of interest 8 percentage after renewal fixed deposit 6 percentage is very less .while document directly bank . Customer service is not good and responsive.
    Was this review helpful? 12
    , kochi
    Reviewed on Aug 05, 2019
Common Loader Icon
Page 1 of 50 1 2 3 4 5
reTH65gcmBgCJ7k
This Page is BLOCKED as it is using Iframes.