What Is Simple Interest?
Simple Interest (SI) is interest calculated only on the original principal amount, not on accumulated interest. This makes it predictable and easy to calculate. It is used for short-term personal loans, some consumer finance, treasury bills, and certain savings schemes.
Simple Interest Formula
SI = P × R × T ÷ 100
Total Amount = P + SI
Where: P = Principal | R = Annual Rate (%) | T = Time (years)
Total Amount = P + SI
Where: P = Principal | R = Annual Rate (%) | T = Time (years)
Simple Interest vs Compound Interest
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Interest basis | Original principal only | Principal + accumulated interest |
| Growth | Linear | Exponential |
| Calculation | Simpler | More complex |
| Common uses | Short-term loans, bills | FDs, mortgages, investments |
Example: ₹1,00,000 at 10% for 5 years
- Simple Interest: ₹50,000 interest → Total ₹1,50,000
- Compound Interest (annual): ₹61,051 interest → Total ₹1,61,051