Simple interest is an easy way to calculate interest based solely on the principal amount. Unlike compound interest, it doesn’t grow by adding interest on interest, making it predictable and constant over time. It’s ideal for understanding basic loan or investment returns.
Use this formula to compute simple interest:
Simple Interest (SI) = (P × R × T) / 100
Total Amount = Principal (P) + Simple Interest (SI)
Where:
P = Principal Amount (initial sum)
R = Annual Interest Rate (%)
T = Time Period (years)
For a ₹10,000 deposit at 6% annual interest over 4 years:
Simple Interest (SI) = (₹10,000 × 6 × 4) / 100 = ₹2,400
Total Amount = ₹10,000 + ₹2,400 = ₹12,400
You’d earn ₹2,400, bringing your total to ₹12,400 after 4 years.