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Simple interest is calculated only on the principal amount. Unlike compound interest, the interest earned does not get added back to the principal for subsequent calculations.
₹0
Principal
Interest
| Year | Accumulated Interest | Total Amount |
|---|---|---|
| 1 | ₹10,000 | ₹1,10,000 |
| 2 | ₹20,000 | ₹1,20,000 |
| 3 | ₹30,000 | ₹1,30,000 |
SI = Simple Interest
P = Principal Amount (Initial amount borrowed or invested)
R = Rate of Interest per annum (in percentage)
T = Time period (in years)
Total Amount (A) = P + SI
Simple Interest is a method of calculating interest on a principal amount over a period of time. Unlike compound interest, simple interest is calculated only on the original principal amount throughout the entire loan or investment period. The interest does not compound - meaning you don't earn interest on previously earned interest.
Scenario: You invest ₹1,00,000 at 10% annual interest for 3 years
Principal (P) = ₹1,00,000
Rate (R) = 10%
Time (T) = 3 years
SI = (1,00,000 × 10 × 3) / 100 = ₹30,000
Total Amount = ₹1,00,000 + ₹30,000 = ₹1,30,000