Net payable amount on Rs 100 at 10 rate after 2 years on the basis of simple interest is

Simple Interest Formula

Last Updated 21st Oct 2022

• Simple interest is the method of calculating interest charged on the amount invested in a fixed deposit.
• Understanding the Simple Interest Formula is essential to know about the basics of finances.
• Simple interest is calculated on the principal amount on a daily/monthly/annual basis.
• Principal amount remains constant during the entire tenure on Simple Interest.
• The formula for calculating Simple Interest is P x r x t ÷ 100, where P=Principal Amount, Rate of Interest & T= Time.
• With a Simple Interest Calculator, you can calculate the interest without any error by saving time and effort.

Simple Interest Calculator

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What is Simple Interest and How to Calculate it?

Simple Interest is the method or technique to calculate the interest on a sum over a period of time at a given rate of interest. It is the easiest technique under which the principal amount remains constant, which means you do not have to pay interest on the previously accumulated interest.

You can calculate Interest on your loans and investments by using the following formula for calculating simple interest:

SI= P x R x T ÷ 100,
where P = Principal,
R = Rate of Interest,
T = Time Period of the Loan/deposit in years,
SI= Simple Interest

• If the time period of loan or investment is in months, then you can use the formula as mentioned below.
  Simple Interest= P x R x T ÷ (100 x 12)
  
• To calculate the amount that you need to pay at the end of tenure or amount that you will receive at the end of the maturity period, you can use the below-mentioned formula.
  Total Amount Value = P x (1 + (r x t))

It works in the following situations.

• When you invest money: Individuals who have invested their surplus money in investment schemes such as Fixed Deposit, Recurring Deposits etc. also receive attractive interests on their investments and can calculate such Interest Income with Simple Interest.
• When you have borrowed money: If you have taken money from the bank or your friends and family, you need to pay extra payment of interest along with the borrowed amount. SI formula can help you to calculate the cost of borrowing in the form of Interest.
• When you lend money: If you have given money to someone, then you can earn Interest Income in exchange for making money available to them. With the Simple Interest formula, you can get a clear picture of extra income in the form of Interest.

Simple Interest Formula Example

If you have deposited ₹ 10,000 with the bank and the rate of interest was 5%. What would the simple interest be if you have invested for 1 year? Similarly, how much interest will you receive for 2 years, 3 years, and 10 years? Principal Amount = ₹ 10,000 Rate of Interest = 5% = 5/100. The table below mentions the Interest you will receive for different tenures.

Simple Interest Calculation in Deposits

To have a better understanding of how Simple Interest works, let's consider this example.

If you have invested ₹ 5,00,000 in a fixed deposit account for 5 years and FD rates on your deposit is 10%, then the interest earned on deposits as per SI formula would be as follows:

SI= 5,00,000 x 10 x 5 ÷ 100 = ₹ 2,50,000
Total Amount at the end of 5 years= ₹ 5,00,000 x (1 + (10 x 5))= ₹ 7,50,000.

Thus, you will receive an additional interest of ₹ 2.50 Lakh at the end of maturity period of 5 years. Further, the maturity amount of the Fixed Deposit will be ₹ 7.50 Lakh.

How to Calculate Simple Interest?

You can easily calculate the Simple Interest using a calculator or by using mathematical interest calculation formula. If you don't want to do the calculations yourself, then enter the principal, rate and time period and the result will be calculated within seconds. If you are using the mathematical formula, then the result can be calculated in the following steps:

• Firstly, multiply the principal P, interest in percentage R and tenure T in years.
• For yearly interest, divide the result of P*R*T by 100.
• To get the monthly interest, divide the Simple Interest by 12 for 1 year, 24 months for 2 years and so on.

What is the Difference Between Simple Interest and Compound Interest?

The basic difference between Simple Interest and Compound Interest is mentioned in the table below:

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FAQs

✅What is simple and compound interest rate?

Simple Interest rate is calculated on the principal amount and is paid and the compound interest is the interest on interest and is calculated on the accumulated interest of previous periods.

✅What is Rate in Simple Interest?

The Rate in Simple Interest refers to the Rate of Interest of Loans or the Rate at which you have lent money to someone or invested your money in any investment scheme.

✅What is the principal formula?

If you already know the Interest amount and want to calculate the Principal amount of Loan/ Deposit you can rearrange the interest formula SI = PRT to calculate the principal amount. The formula for calculating Principal amount would be P = I / (RT) where Interest is Interest Amount, R is Rate of Interest and T is Time Period.

✅How do you calculate interest?

You can calculate Interest by using the manual method or by Interest Calculator by using Principal amount of Investment/ Borrowed Money, Rate of Interest and Time Period of Deposits/Loan. The formula for calculating Simple Interest is P x R x T ÷ 100, where P = Principal, R = Rate of Interest and T = Time Period of the Loan/Deposit in years.