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What is a simple interest calculator?
Simple interest is the amount of money you make on your investment. It is also called the principal amount. For example, if you deposit or invest Rs.100 in a savings/investment option that pays simple interest at 7% per year, you will get Rs.7 every year as simple interest for the entire investment duration. At maturity, you will get back the initial investment amount, i.e. Rs.100 and interest generated at the end of the term. Calculating simple interest by hand over a long period may be tricky. A simple interest rate calculator is helpful in calculating the interest amount and accumulated amount over the required time frame.
A simple interest calculator is a digital tool that lets you calculate the amount of simple interest without taking too much time and doing complicated calculations. It has a simple interest rate formula box already entered into the online simple interest calculator.
You have to simply enter the principal amount, interest rate, and time on the simple interest calculator as per your requirements.
You can use 8bit Market's simple interest calculator online. You may use the simple interest calculator to figure out how much you’ll pay/earn at the end of a loan/investment if you are borrowing/investing money and paying/making simple interest.
What is simple interest rate formula?
We may use simple interest in both investment and borrowing situations. With investment, you earn interest, but you must pay interest to the lender when you borrow money.
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Let us see how simple interest would work in both of these cases.
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When you earn simple interest in your funds, the financial institution computes your interest income based on your invested amount. Here, the interest is generated only on the principal and not on the principal with interest earned previously. In case of simple interest, there is no such thing as interest on interest.
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So, in the above example, your yearly interest rate is 7% and is computed on the original investment amount of Rs.100. In the coming years, it will calculate interest based on 100, rather than the interest earned the prior year, i.e. Rs.7.
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Compound interest varies from simple interest. The compound interest is computed on a larger sum each year. For example, if you invest Rs.100 and receive Rs.7 as the first year’s interest, you will collect interest on Rs.107 instead of Rs.100 next year. This makes simple interest rates different from compound interest.
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A Fixed Deposit with a monthly/quarterly payout option is an example of a saving option that offers simple interest. Here, the interest is earned on the principal only as the interest gained during the quarter or month is automatically credited to your savings account.
Car and consumer loans use simple interest to figure out the EMI. If we apply the previous example as before, but this time the 100 represents the borrowed money rather than the invested amount, the interest due per year will be Rs.7.
Simple interest formula
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Now, let us look at the simple interest formula.
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Here’s the simple interest rate formula:
Simple Interest = (P*R*T)/100
Where:
P= Principal (the original amount invested/borrowed)
R= Interest rate (in per cent per annum)
T= Time Duration (in years)
In this simple interest formula, the annual interest rate is multiplied by the number of years and the principal amount.
Let us see an example of simple interest formula.
Let’s assume that the principal amount is Rs 1 lakh. The annual interest rate is 9%, and the term is two years.
Now the amount of simple interest will be
Simple Interest = (1,00,000*9*2 years)/100
=18,000
So, Rs.18,000 is the interest amount.
To calculate the total amount that you will receive or must give at the end of two years will be
Total amount = Principal + simple interest
1,00,000+18,000 = 1,18,000
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This helps to understand the amount received/paid at the end of the maturity period.
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Future Value Calculation
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The above simple interest formula helps you figure out the interest amount on the principal.
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There is another formula that can show you the future amount.
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To get the future amount with simple interest, we will need the principal, an interest rate and the time duration.
Here’s the formula:
FV= P(1+RT)
Where:
FV= Future Value
P = Principal
R = interest rate expressed as a decimal
T = number of time periods
Let’s calculate the future value with the simple interest formula example that we mentioned above:
FV = 1,00,000 (1+0.09*2) = Rs 1,18,000.
We can see that the future value is the same for both calculators.
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How does a simple interest calculator work?
A simple interest calculator uses the formula that we have seen in the earlier paragraphs as part of its code. You enter all the variables for a specific loan or investment, and the calculator calculates the total interest you will earn or pay, depending on the information you provide.
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Imagine you wish to use a simple interest rate calculator online to compute simple interest on your investment or loan. You can enter the principal amount (Rs.1 lakh), annual interest rate (7%) and five years.
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Assuming that you have withdrawn no principal over the five years, the calculator will compute interest on the whole principal for the five years at 7% and calculate the interest as Rs.35,000 (i.e., Rs.1,000,000 x 7% x 5 years).
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How to use 8bit Market’s Simple interest calculator
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The Upstox’s simple interest calculator is simple to use online. In order to use the Upstox Simple interest rate calculator, you need to input three things:
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1. The principal amount, i.e., the invested or borrowed amount
2. The simple interest rate
3. The time you will keep the money you have put in or the time the loan’s principal will be due
After adding these values and hitting the calculate button, the online simple interest calculator will use the simple interest rate formula to calculate the interest amount and the total amount within seconds. You will get the actual interest you will get/pay throughout the period.