Where is simple interest actually used?

Short-term instruments and many statutory calculations: treasury bills, some fixed deposits paying out rather than reinvesting, and interest awarded on delayed payments and refunds. Anything left to accumulate over years is compound.

How do I convert a simple interest rate to a compound one?

You cannot convert the rate; you compare the totals. Simple interest of 10% for three years pays 30% in total, which is a compound rate of 9.14% a year, because (1.3)^(1/3) - 1 = 0.0914.

Finance & Loansinterest

Simple Interest Calculator

Simple interest, with the compound equivalent shown next to it. The gap between the two is the entire argument for starting early.

Also called: si calculator, simple interest formula calculator.

Simple interest

₹40,000

₹40,000 of interest on ₹1,00,000 over 5 years, giving a maturity value of ₹1,40,000. Compound interest at the same rate would give ₹1,46,933.

Maturity value

₹1,40,000

The same at compound interest

₹1,46,933

What compounding adds

₹6,933

How this is calculated

An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for India change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

Simple interest is charged only on the original principal, so it grows in a straight line. Compound interest is charged on interest already earned, so it curves. Over five years the difference is modest; over twenty-five it is most of the money.

interest = principal * rate * time

P: Principal (currency)
r: Annual rate as a decimal (decimal)
t: Time in years (years)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

8% on 1L for 5 years

Principal: ₹1,00,000
Interest rate (per year): 8%
Time: 5

Simple interest₹40,000

arithmetic identity: 100000 x 0.08 x 5

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zero rate earns nothing

Principal: ₹1,00,000
Interest rate (per year): 0%
Time: 5

Simple interest₹0

degenerate case

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zero time earns nothing

Principal: ₹1,00,000
Interest rate (per year): 8%
Time: 0

Simple interest₹0

boundary

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Method and limits

What it assumes

The return you enter is assumed to hold, unchanged, for the whole period. No market does this.
Returns are compounded at the stated frequency with no taxes, fees or exit loads deducted.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Where is simple interest actually used?: Short-term instruments and many statutory calculations: treasury bills, some fixed deposits paying out rather than reinvesting, and interest awarded on delayed payments and refunds. Anything left to accumulate over years is compound.
How do I convert a simple interest rate to a compound one?: You cannot convert the rate; you compare the totals. Simple interest of 10% for three years pays 30% in total, which is a compound rate of 9.14% a year, because (1.3)^(1/3) - 1 = 0.0914.