Simple Interest Formula: How to Calculate Simple Interest with Examples

Simple interest is the first interest formula most of us learn at school – and it is still used for many real loans and deposits, from gold loans and short-term deposits to informal lending. This guide explains the simple interest formula, shows how to calculate simple interest for years, months and days, how to find the principal, rate or time when one is missing, and how simple interest compares with compound interest – with fully solved examples.

What Is Simple Interest?

Simple interest (SI) is interest calculated only on the original amount – the principal – for the whole period. Unlike compound interest, the interest earned is not added back to the principal, so the interest for each year is the same. It is easy to calculate and is used where periods are short or where lenders want a simple, fixed charge.

Simple Interest Formula

SI = P × R × T ÷ 100

• P = principal (the amount borrowed or invested)
• R = rate of interest per year (%)
• T = time in years

Amount (A) = P + SI

Example 1: Simple Interest for Years

Find the simple interest on ₹50,000 at 8% a year for 3 years.

1. SI = 50,000 × 8 × 3 ÷ 100 = ₹12,000
2. Amount = 50,000 + 12,000 = ₹62,000

The interest is ₹4,000 in each of the three years – the same every year, because it is always calculated on ₹50,000.

Example 2: Simple Interest for Months

When the time is in months, divide by 12 to convert it to years.

₹1,00,000 at 9% for 8 months: T = 8 ÷ 12 years. SI = 1,00,000 × 9 × 8 ÷ (100 × 12) = ₹6,000.

Example 3: Simple Interest for Days

For days, divide by 365 (banks in India usually use a 365-day year).

₹2,00,000 at 7% for 146 days: SI = 2,00,000 × 7 × 146 ÷ (100 × 365) = ₹5,600.

To count the exact number of days between two dates, use our days calculator. Remember that the day of deposit is usually counted and the day of withdrawal is not, or vice versa – check the lender's rule.

Finding Principal, Rate or Time

Rearrange the formula to find whichever value is missing:

When Does Money Double Under Simple Interest?

Money doubles when the interest equals the principal, that is when R × T = 100. At 8% simple interest, money doubles in 100 ÷ 8 = 12.5 years. At 10%, it takes 10 years. Under compound interest money doubles faster – at 8% in about 9 years (the Rule of 72).

Simple Interest vs Compound Interest

The gap grows quickly with time and rate. For long-term savings, compounding is far more powerful – see our guide on the compound interest formula.

Where Simple Interest Is Used in Real Life

• Gold loans and short-term personal loans often quote simple interest for the loan period.
• Flat-rate loans – some consumer and vehicle loans charge interest on the full original amount for the whole term, which makes them costlier than they look. Read about flat vs reducing rates in our home loan EMI guide.
• Informal lending – rates like "₹2 per hundred per month" are simple interest of 2% a month, or 24% a year.
• Short-term deposits – bank deposits for less than six months usually pay simple interest at maturity.
• Treasury bills and some bonds use simple-interest style calculations for short periods.

Converting Monthly Rates to Annual Rates

Informal lenders and some shops quote rates per month. Under simple interest, multiply the monthly rate by 12: 1.5% a month is 18% a year and 2% a month is 24% a year. Always convert to an annual figure before comparing a loan with a bank's quoted rate – a "small" monthly rate is often very expensive.

Simple Interest in Excel

• Interest: =P*R*T, for example =50000*8%*3 gives 12,000.
• Interest for days: =200000*7%*146/365 gives 5,600.
• Amount: =P*(1+R*T).

Common Mistakes

• Forgetting to convert months or days into years.
• Using the percentage as a whole number and a decimal at the same time (8 instead of 0.08, or dividing by 100 twice).
• Adding interest to the principal each year – that turns it into compound interest.
• Comparing a monthly rate with an annual rate.

Simple Interest Table on ₹10,000

Because simple interest grows in a straight line, you can scale these figures: for ₹50,000, multiply by 5; for ₹1 lakh, multiply by 10.

Simple Interest Questions in Competitive Exams

Simple interest is a favourite topic in bank, SSC and railway exams. Four common question types:

1. A sum becomes ₹7,200 in 3 years and ₹8,400 in 5 years at simple interest. Find the principal and rate. Interest for 2 years = 8,400 − 7,200 = ₹1,200, so ₹600 a year. Interest for 3 years = ₹1,800, so P = 7,200 − 1,800 = ₹5,400. Rate = 600 × 100 ÷ 5,400 = 11.11%.
2. At what rate will a sum double in 8 years? R = 100 ÷ 8 = 12.5%.
3. A sum triples in 20 years at simple interest. What is the rate? Interest = 2P, so R = 200 ÷ 20 = 10%.
4. Find the difference between compound and simple interest on ₹10,000 at 10% for 2 years. SI = ₹2,000; CI = ₹2,100; difference = ₹100. For 2 years the shortcut is P × (R/100)².

Simple Interest on Deposits vs Loans

For a depositor, simple interest is less attractive than compound interest because interest does not earn interest. For a borrower, a simple-interest loan on the original principal can actually cost more than a reducing-balance loan at the same quoted rate, because you keep paying interest on money you have already repaid. Always compare loans using the effective annual rate or the total interest payable.

Quick Check for Any Answer

Estimate before calculating: 10% of the principal per year is easy to find mentally, and you can scale from there. If your answer for ₹50,000 at 8% for 3 years is not a little under 3 × ₹5,000 = ₹15,000, recheck the working.

Frequently Asked Questions

Note: Examples use a 365-day year and ignore tax. Lenders may use different day-count conventions and charges – check the loan agreement.