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Simple interest calculator: Formula and calculation

[ecis2016.org] The simple interest calculator helps you calculate your deposits along with interest without compounding.

What is simple interest?

Simple interest is the interest rate at which you borrow or lend money. For example, if you deposit Rs 100 in a savings account that pays simple interest of 7% per year, you will get Rs 7 every year as simple interest. This means you will have Rs 107 as your savings in your account at the end of one year, Rs 7 being the simple interest on the principal amount of Rs 100.

What is a simple interest calculator?

Calculating simple interest may not be easy with big figures. This is where a simple interest calculator becomes useful.

A simple interest calculator is an online tool that helps you calculate the exact amount you will earn on the money you have deposited with a bank or financial institution. The money you deposit is known as the principal amount while the money you receive as an income is known as interest. A simple interest calculator helps you calculate both these amounts, without compounding.

Using the simple interest calculator, you know the exact amount of savings you will have in your account after a specific period. This will help you plan your finances. Also, since banks offer different rates of interest on fixed deposits and recurring deposits, an interest calculator is helpful, to understand the difference it would make to switch to a new bank that offers a higher interest rate.

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Simple calculator formula

A simple interest calculator works on the following formula:

A = P (1 + RT)

In this formula:

A = total amount (principal + interest)

P = principal amount

I = interest

R = annual rate of interest in decimal/percentage

T = time period

Let us assume you deposit a principal amount of Rs 50,000 at interest rate of 10% for 5 years.

You can calculate the simple interest as:

50,000 (1 + 0.1×5) = Rs 75,000

Here, interest = Total amount – Principal

Rs 75,000 – Rs 50,000 = Rs 25,000

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Details you need, to use a simple interest calculator

  • Principal amount
  • Annual interest rate
  • Time period for which the money remains deposited

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Debora Berti

Università degli Studi di Firenze, IT

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