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.

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Simple Interest Formula Reviews

Page 1 of 50 1 2 3 4 5
  • 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? 0
    , ahmedabad
    Reviewed on Aug 23, 2019
  • ICICI Bank
    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? 0
    , 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? 2
    , 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? 2
    , 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? 4
    , kochi
    Reviewed on Aug 05, 2019
  • Kotak Fixed Deposit
    "Excellent Banking"
    KOTAK MAHINDRA BANK
    0.5 5.0/5 "Blown Away!"
    I activated FD account with Kotak, I have been maintaining this account since when I opened saving account, I converted Rs. 5000 for one year. They are providing interest around 7.6% per annum, the online netbanking and mobile app is very convenient for deposit to FD.
    Was this review helpful? 3
    , mumbai
    Reviewed on Aug 03, 2019
  • ICICI Bank Fixed Deposit
    "Good"
    ICICI BANK
    0.5 4.0/5 "Great!"
    I have invested my FD with ICICI BANK and also have a 3in1 account with them. The interest rate is pretty good. Recently started before 6months, I can do premature withdrawal and also have selected a locking period of 3 years. The customer service is good and overall am satisfied with this bank.
    Was this review helpful? 2
    , mumbai
    Reviewed on Aug 01, 2019
  • Post Office Fixed Deposit
    "Safe and Secured"
    INDIA POST OFFICE
    0.5 4.0/5 "Great!"
    My Post office branch is located in own campus hence there is no queue. I opened the fixed deposit, I made one time investment for five years its has tax exemption. They are providing 7% of interest for per annum. I believe it has online access as well.
    Was this review helpful? 2
    , bangalore
    Reviewed on Aug 01, 2019
  • SBI Fixed Deposit
    "Too much good scheme"
    STATE BANK OF INDIA
    0.5 5.0/5 "Blown Away!"
    Chosen my fixed deposit from State bank of India. I have invested the money of Rs. 57000 and SBI is a most popular bank all over the India and offering all the facilities compared to bank. Since i have a salary account with them, its easy to transfer the money. They are providing the interest rate of 6.5%.
    Was this review helpful? 2
    , kolkata
    Reviewed on Jul 31, 2019
  • Union Bank of India Fixed Deposit
    "Good Investment"
    UNION BANK OF INDIA
    0.5 4.0/5 "Great!"
    Union of India fixed deposit is same as other investment. Being an existing customer I have opt for one year of fd, the online banking feature is good to open and closing the account, they was no charges for the liquidity of fund before the maturity.
    Was this review helpful? 1
    , mumbai
    Reviewed on Jul 29, 2019
  • SBI Fixed Deposit
    "Good investment plan"
    STATE BANK OF INDIA
    0.5 4.0/5 "Great!"
    Chosen my fixed deposit from state bank of India because the given rate of interest is high. They are not deducting any service charges. I have invested the money of Rs. 1 lakhs and there is no lockin period and i have chosen the plan for 1 year and they are giving a interest rate of 6.75%.
    Was this review helpful? 6
    , bangalore
    Reviewed on Jul 25, 2019
  • HDFC Bank Fixed Deposit
    "GOOD"
    HDFC BANK
    0.5 5.0/5 "Blown Away!"
    I am using the savings account with HDFC BANK since from last 5 years, the reason for taking the fixed deposit was they are giving good rate of interest. The application is easy to use with the bank and to check the status of the account.
    Was this review helpful? 3
    , hyderabad
    Reviewed on Jul 20, 2019
  • ICICI Bank Fixed Deposit
    "Good investment for future"
    ICICI BANK
    0.5 4.0/5 "Great!"
    I opened fixed deposit with ICICI it gives tax benefits upto 80 c section, I invest Rs. 50,000 as a one time investment it has the term of five years. The online banking is good to deposit the money to take the liquidity, I have option to track the FD details also netbanking.
    Was this review helpful? 5
    , bangalore
    Reviewed on Jul 19, 2019
  • Union Bank of India Fixed Deposit
    "Its Recommendable "
    UNION BANK OF INDIA
    0.5 5.0/5 "Blown Away!"
    I have fixed deposit with Union Bank of India, I opt for one year fixed deposit , they are providing 8.60% of interest for per annum. I got the profit around Rs. 8000 for the amount invested amount of around Rs. 1.60 lakh, I would recommend this service. They do have option to deposit the amount through online.
    Was this review helpful? 1
    , hyderabad
    Reviewed on Jul 18, 2019
  • Citibank Fixed Deposit
    "GOOD"
    CITIBANK
    0.5 5.0/5 "Blown Away!"
    I have withdrawn the money so that there was a quick response also i got the money within few minutes. I used the account for more than 2 years. To open the account it is easy i have done through the online. The rate of interest was 6% per annum.
    Was this review helpful? 1
    , hyderabad
    Reviewed on Jul 18, 2019
  • SBI Fixed Deposit
    "GOOD"
    STATE BANK OF INDIA
    0.5 3.0/5 "Satisfactory"
    I am not much satisfied with the fixed deposit with STATE BANK OF INDIA. I am using from last few years and there is a good online banking also the service from the customer support is good added on that the overall service with them was good.
    Was this review helpful? 4
    , kolkata
    Reviewed on Jul 17, 2019
  • HDFC Bank Fixed Deposit
    "GOOD"
    HDFC BANK
    0.5 4.0/5 "Great!"
    To open the account with HDFC BANK is good and simple which is easy also quick process. They are providing with the good rate of interest with the bank. The online banking i am using it is simple and easy also it is good to use. The overall service is good.
    Was this review helpful? 2
    , kolkata
    Reviewed on Jul 17, 2019
  • YES Bank Fixed Deposit
    "GOOD"
    YES BANK
    0.5 5.0/5 "Blown Away!"
    I am having the fixed deposit with the YES BANK where the banking process was simple also to open the account it is easy and there is no locking period with the account. The customer support is good and they are with good response, overall service is good.
    Was this review helpful? 6
    , kolkata
    Reviewed on Jul 17, 2019
  • Corporation Bank Fixed Deposit
    "Comfortable Fixed deposit"
    CORPORATION BANK
    0.5 4.0/5 "Great!"
    I have opt for five years of fixed deposit with Corporation Bank. I can invest minimum of Rs. 1000 and max amount, they are providing the current interest of 7.5% per annum but I can also prolong the duration. I have online option to deposit the fd amount, even the maturity comes along the interest to the direct account.
    Was this review helpful? 1
    , mumbai
    Reviewed on Jul 15, 2019
  • Post Office Fixed Deposit
    "Service needs to be improved"
    INDIA POST OFFICE
    0.5 3.0/5 "Satisfactory"
    I do not use Post office service often because its inconvenient and they recently started the debit card service or else we need to visit to the branch for the withdrawing the money in the queue. But Post office fixed deposit interest has more interest, my mother is taking care of it.
    Was this review helpful? 2
    , gurgaon
    Reviewed on Jul 13, 2019
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