When you borrow or lend, the rate at which you borrow or lend is known as interest. There are mainly two types of interests paid on loans and deposits – simple interest and compound interest. The type of interest and the method of calculation of interest vary as per the terms of the loan or the deposit. Let’s know more about simple interest in detail.

What is simple interest?

Simple interest is an interest that is payable or earned on the principal amount of a loan or investment over a period. Simple interest can be calculated by multiplying the principal amount, interest rate, and the number of years. In simple interest, interest is paid on the principal and ‘the interest on interest ‘does not get applied. Following is the formula used for the calculation of simple interest. 

Simple interest = P X (R/100) X T

In this formula, 

P – Principal amount of fixed deposit

R – Rate of interest 

T – Fixed deposit tenure

Let’s take an example to understand this. Let’s say the principal amount is INR 50,000, the applicable interest rate is 10% p.a. and the number of years is 5 years. The amount of simple interest would be:

Simple interest = P X (R/100) X T

                            = 50,000 X 10% X 5

                            = INR 25,000

Simple interest calculation is quite easy, especially when the rate of interest is fixed and the money is invested for one time. If the rates are variable and the investment is on a frequent basis such as a monthly investment in a recurring deposit, then the calculation of simple interest manually could take a lot of time. In such situations, a simple interest calculator can come to your rescue. You can use the SI calculator online and calculate the simple interest with variable rates in no time.

Variable rates are the interest rates that fluctuate based on the ongoing movement of prime interest rates during the loan tenure. The declining rate of interest can be beneficial for the borrower as that reduces the amount of interest. Calculation of simple interest with variable rates can be easily done using an SI calculator online. 

Let’s know more about simple interest calculators.

What is a simple interest calculator?

A simple interest calculator also referred to as an SI calculator online is an extremely useful mathematical tool available on a digital platform that helps you calculate the simple interest amount paid or earned on your loans or deposits without any hassles quickly. SI calculator online is a user-friendly tool that is easy to use that helps you calculate the simple interest from the comfort of your home. 

A simple interest calculator online requires you to input the details of your loan or the deposit to calculate the amount of interest. Let’s take a look at the process of simple interest calculation using an SI calculator online:

• Log on to SI calculator online
• Input the amount of investment i.e., the principal amount
• Choose whether the investment is for one time or done on a monthly basis
• Select the period of investment
• Mention the rate of interest per annum
• Click on ‘calculate’ to know the amount of interest and the maturity amount. 

If there is any change in the variables like principal amount, rate of interest, and the number of years, you can repeat the calculation using a simple interest calculator. A simple interest calculator is designed based on the above-mentioned simple interest formula. Hence, it gives you the result based on the inputs entered by you. 

Let’s say you are using the calculator for calculating the amount of interest that you would earn on your one-time fixed deposit investment or monthly investments in a recurring deposit account. Once you calculate the amount of interest and the maturity amount using the SI calculator online, you have the option to factor in the inflation to know the inflation-adjusted rate of return from your investment. 

Let’s take an example to understand this. Let’s say you have invested INR 1,00,000 at 10% p.a interest for five years. The amount of simple interest you would earn on maturity is:

Simple interest = 1,00,000 X 10% X 5

                            = INR 50,000

Let’s say you factor in 4% of inflation, SI calculator online would let you know that your inflation-adjusted interest would be INR 28,846.

A simple interest calculator has made your calculations super easy and also can help you get an overview of how much could be earned on invested money.