💰 Simple Interest Calculator
Calculate simple interest and compound interest side by side. Compare SI vs CI instantly for any principal, rate and time period. Free, no signup.
What is Simple Interest?
Simple Interest (SI) is interest calculated only on the original principal amount for the entire duration of the loan or investment. It does not take into account any interest accumulated in previous periods. The formula is: SI = (P × R × T) / 100, where P is the principal, R is the annual rate of interest in percent, and T is the time in years.
For example, if you invest ₹1,00,000 at 10% per annum for 5 years using simple interest: SI = (1,00,000 × 10 × 5) / 100 = ₹50,000. Your total amount at maturity is ₹1,50,000. Each year you earn the same ₹10,000 in interest regardless of accumulated earnings.
What is Compound Interest?
Compound Interest (CI) is calculated on the principal plus the interest that has already been accumulated in previous periods — effectively "interest on interest". The formula is: A = P × (1 + R/100)^T, where A is the total amount at maturity. Compound Interest = A − P.
Using the same example — ₹1,00,000 at 10% per annum for 5 years with annual compounding: A = 1,00,000 × (1.10)^5 = ₹1,61,051. CI = ₹61,051. This is ₹11,051 more than simple interest over the same period. The longer the time period, the greater the advantage of compounding.
Simple Interest vs Compound Interest — Key Differences
- Base of calculation: SI uses only the original principal; CI uses principal + accumulated interest
- Growth pattern: SI grows linearly; CI grows exponentially over time
- Short periods: The difference between SI and CI is small over 1–2 years
- Long periods: CI can earn significantly more — sometimes double over 20–30 years
- Where SI is used: Vehicle loans, personal loans, education loans, gold loans
- Where CI is used: Fixed deposits, PPF, mutual funds, credit card debt, home loans
Why Compounding Matters for Investments
Albert Einstein is often credited with calling compound interest the "eighth wonder of the world." The power of compounding is most visible over long time horizons. At 12% annual return, money doubles roughly every 6 years under compound interest (Rule of 72: 72 ÷ 12 = 6). Under simple interest at 12%, your money only doubles once you've held it for approximately 8.33 years — and then never doubles again on the same principal.
This is why starting to invest early makes such a dramatic difference. An investment of ₹1,00,000 at 12% compounded annually for 30 years grows to approximately ₹29,96,000 — nearly 30 times the original investment. The same amount at simple interest for 30 years yields just ₹4,60,000.
Frequently Asked Questions
What is the formula for simple interest?
The simple interest formula is SI = (P × R × T) / 100, where P is the principal amount, R is the annual interest rate in percent, and T is the time period in years. The total maturity amount is A = P + SI. For example, ₹50,000 at 8% for 3 years: SI = (50,000 × 8 × 3) / 100 = ₹12,000. Total amount = ₹62,000.
What is the formula for compound interest?
The compound interest formula is A = P × (1 + R/100)^T, where A is the total amount at maturity, P is the principal, R is the annual interest rate in percent, and T is the time in years. CI = A − P. For example, ₹50,000 at 8% for 3 years: A = 50,000 × (1.08)^3 = 50,000 × 1.2597 = ₹62,986. CI = ₹12,986 — ₹986 more than simple interest.
What is the difference between SI and CI?
Simple interest is calculated only on the original principal throughout the entire period — you earn the same amount of interest each year. Compound interest is calculated on principal plus accumulated interest — you earn interest on your interest, so returns grow faster each year. The difference is small over 1–2 years but becomes dramatic over 10–30 years. Compound interest is better for investors; simple interest is cheaper for borrowers.
Which is better — SI or CI?
It depends on whether you are borrowing or investing. As a borrower, SI is better — you pay less interest. As an investor, CI is better — you earn more. In practice, bank FDs, PPF and mutual funds use compound interest (annual or quarterly), making them powerful long-term wealth builders. Personal loans and vehicle loans typically use a reducing balance method (a form of simple interest on the outstanding principal), which is cheaper than CI loans.
What is the Rule of 72 for compound interest?
The Rule of 72 is a quick shortcut to estimate how long it takes to double your money with compound interest. Divide 72 by the annual interest rate: Years to double = 72 ÷ Rate. At 8% annual return: 72 ÷ 8 = 9 years to double. At 12%: 72 ÷ 12 = 6 years. At 6%: 72 ÷ 6 = 12 years. This rule works well for rates between 6% and 20% and is useful for quick mental calculations about long-term investments like PPF, mutual funds and FDs.