Simple Interest Calculator: Formula, Examples & When It Applies
By the QuickYield Team · Published August 26, 2026 · 5 min read
What’s the simple interest on ₹1,00,000 at 8% for 3 years? ₹24,000 — calculated only on the original principal every year, unlike compound interest which would grow to slightly more because it also earns interest on previously accrued interest.
The formula
Simple interest = principal × rate × time ÷ 100. That’s it — no compounding, no reinvestment of interest, just a flat percentage of the original amount for every year (or period) that passes. Total amount = principal + simple interest.
Simple interest table: ₹1 lakh at 8%
| Time period | Interest | Total amount |
|---|---|---|
| 1 year | ₹8,000 | ₹1,08,000 |
| 3 years | ₹24,000 | ₹1,24,000 |
| 5 years | ₹40,000 | ₹1,40,000 |
| 10 years | ₹80,000 | ₹1,80,000 |
Simple interest vs compound interest: the gap grows with time
On the same ₹1,00,000 at 8% for 10 years, simple interest gives ₹80,000 — compound interest (compounded annually) gives ₹1,15,892. The gap is small in year one and widens every year after, because compound interest keeps earning on a growing base while simple interest stays flat against the original principal. See the full breakdown of how that compounding effect works in our Compound Interest Calculator guide.
Where simple interest actually still applies
Almost nothing in modern retail banking uses pure simple interest — savings accounts, FDs, and RDs all compound. Where it genuinely shows up: some short-term personal or consumer loans advertise a flat/simple interest rate structure (though the effective rate can be higher than it appears once you account for how it’s applied to the full principal throughout the loan, rather than a reducing balance), and it’s used in some legal/contractual contexts, and as a simplified teaching example for interest concepts. If a loan explicitly says “flat rate” or “simple interest,” the true effective rate is usually meaningfully higher than the stated rate — verify with our EMI Calculator for the reducing-balance equivalent before comparing offers.
Frequently asked questions
›Do banks use simple interest for savings accounts?
No — savings accounts, fixed deposits, and recurring deposits in India all use compound interest (savings accounts typically compound quarterly), not simple interest.
›Why do some loans advertise a ’flat’ or ’simple’ interest rate?
A flat/simple rate is calculated on the original principal for the full tenure rather than a reducing balance, which makes the effective interest rate meaningfully higher than the stated rate looks — always convert to a reducing-balance equivalent before comparing to other loan offers.
›Is simple interest ever better for the borrower than compound interest?
As a borrower, simple interest on a loan is worse than reducing-balance interest at the same stated rate, since you keep paying interest on the original amount rather than a shrinking balance — as a saver/investor, though, simple interest is worse than compound interest, since your money doesn’t earn interest on its own interest.
Try it yourself
Open the Simple Interest Calculator →
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This article is for general information only and isn’t financial, tax, or legal advice. See our disclaimer.