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
    "Good in FD service"
    STATE BANK OF INDIA
    0.5 5.0/5 "Blown Away!"
    I am having a savings account with State Bank of India hence i have selected the Fixed deposit investment scheme with them. They are providing the interest rate of 8%. I have invested the money 2 years back and there is a lockin period of 72 months.
    Was this review helpful? 10
    , visakhapatnam
    Reviewed on Mar 02, 2020
  • Kotak
    Kotak Fixed Deposit
    "Safe and secure"
    KOTAK MAHINDRA BANK
    0.5 4.0/5 "Great!"
    Kotak Mahindra bank is a reliable bank and good management thats the reason i have invested the fixed deposit scheme in this bank. They have provided me a interest rate of 7% and i have kept for the period of 1 year and 1 month. Overall, I'm satisfied with their services.
    Was this review helpful? 1
    , ahmedabad
    Reviewed on Mar 01, 2020
  • HDFC Bank Fixed Deposit
    "Safe and Secure"
    HDFC BANK
    0.5 5.0/5 "Blown Away!"
    I have purchased HDFC Fixed deposit which I am renewing for every 13 months. They have given me an interest rate of 7% and There is no processing fee and there is no locking period as well. If I'm withdrawing FD amount before locking period, they are charging some amount.
    Was this review helpful? 5
    , ahmedabad
    Reviewed on Mar 01, 2020
  • Punjab National Bank Fixed Deposit
    "PNB Fixed Scheme is good"
    PUNJAB NATIONAL BANK
    0.5 5.0/5 "Blown Away!"
    I went to the nearby branch for the Punjab National Bank for taking my fixed deposit as per my family members recommendation. I have invested the money of Rs. 50000 there was a lockin duration of 6 years when i withdraw the money, i got the money of Rs.1 lakhs. They have offered me a interest rate of 7%.
    Was this review helpful? 4
    , jamshedpur
    Reviewed on Feb 27, 2020
  • Post Office Fixed Deposit
    "Good Service"
    INDIA POST OFFICE
    0.5 5.0/5 "Blown Away!"
    I was having my savings account from Post office hence i have invested my money into Post office Fixed deposit scheme. I have invested the money of Rs. 25000. There is a lockin period of 10 years. I have invested the money in the year of 2011. Post office service is proper. Overall, I'm happy about the services.
    Was this review helpful? 23
    , chennai
    Reviewed on Feb 25, 2020
  • HDFC Bank Fixed Deposit
    "FD is not good with HDFC"
    HDFC BANK
    0.5 4.0/5 "Great!"
    I have invested some money as a Fixed deposit in HDFC Bank and the interest rate is not that much great because they are giving interest as compared to others. I have invested the money of Rs. 3L and there is a locking period of 5 years. Its 7% interest rate. If they are increasing the interest rate, it would be fine. Since I do all my transactions with this bank, I have selected same for my FD as well.
    Was this review helpful? 8
    , bangalore
    Reviewed on Jan 31, 2020
  • SBI Fixed Deposit
    "Good support"
    STATE BANK OF INDIA
    0.5 5.0/5 "Blown Away!"
    I have chosen my fixed deposit scheme from State bank of India because I'm maintaining my salary account with them and they provided rate of interest is fine for me. I have invested the money of Rs. 2.75 lakhs. There is a locking period of 45 days. They are giving interest rate of 4.5%. Overall, I'm satisfied with their services.
    Was this review helpful? 17
    , namakkal
    Reviewed on Jan 18, 2020
  • Kotak Fixed Deposit
    "Good App"
    KOTAK MAHINDRA BANK
    0.5 5.0/5 "Blown Away!"
    I have been investing the money of Rs. 3 lakhs for the fixed deposit. I have selected Kotak mahindra bank for the FD because their net banking facility is very different when i compared to other. I can access everything regarding the account hence its easy to handle the transactions. I'm not sure about the interest rates. 7 months before, i have invested the money.
    Was this review helpful? 11
    , bangalore
    Reviewed on Jan 08, 2020
  • Kotak Fixed Deposit
    "Excellent Services"
    KOTAK MAHINDRA BANK
    0.5 5.0/5 "Blown Away!"
    Its because of the competitive interest rates, i have selected the Fixed deposit in Kotak Mahindra bank. I have invested the fixed deposit 1.5 years ago and there is a lockin period of 5 years. They have invested the amount of Rs. 7.5 % and the employees are helpful in the branch.
    Was this review helpful? 8
    , mumbai
    Reviewed on Jan 08, 2020
  • Axis Bank Fixed Deposit
    "Good Savings scheme"
    AXIS BANK
    0.5 4.0/5 "Great!"
    I have a Fixed deposit in Axis bank. I have invested the money of Rs. 10000 for two FDs. There is a lockin duration of 1 year. They are giving a interest rate of 7%. Through net banking, i have activated this Fixed deposit. There is no tax benefits available. Axis bank service has been good. Overall, I'm happy about their services.
    Was this review helpful? 7
    , kolkata
    Reviewed on Dec 31, 2019
  • 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? 16
    , bulandshahr
    Reviewed on Dec 03, 2019
  • 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? 54
    , 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? 28
    , 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? 19
    , 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? 100
    , 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? 12
    , 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? 17
    , 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? 24
    , 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? 36
    , 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? 15
    , new delhi
    Reviewed on Sep 24, 2019
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