Simple interest is a basic form of interest that is calculated only on the original principal amount of money. It does not take into account any additional interest earned over time. The formula for calculating simple interest is:

Simple Interest = Principal × Interest Rate × Time


  • Principal refers to the initial amount of money that is borrowed or invested.
  • Interest Rate is the percentage charged or earned on the principal amount.
  • Time is the duration, usually measured in years, for which the interest is calculated.

The resulting value is the amount of interest earned or charged over the given time period. It's important to note that simple interest does not consider any compounding, meaning the interest is not added back to the principal to earn more interest.

For example, let's say you deposit $1,000 in a savings account that offers a simple interest rate of 5% per year for 3 years. Using the formula, the calculation would be:

Simple Interest = $1,000 × 0.05 × 3 = $150

Therefore, over the course of 3 years, you would earn $150 in simple interest.

Simple interest is a method of calculating the interest on a loan or investment. It is called "simple" because it is calculated solely based on the initial amount, known as the principal, and the interest rate. The interest does not compound or accumulate over time.

The formula for calculating simple interest is:

I = P * R * T

Where: I = Interest,

         P = Principal (initial amount),

         R = Interest rate (expressed as a decimal),

         T = Time (usually measured in years),

By multiplying the principal by the interest rate and the time, you can determine the interest amount that will be accrued over the given period. The result, I, is the total interest earned or paid.

To find the total amount (principal plus interest), you can use the formula:

A = P + I

Where: A = Total amount (principal plus interest),

         P = Principal,

         I = Interest,

Keep in mind that simple interest is typically used for short-term loans or investments and does not take into account compounding interest, which is when the interest itself earns additional interest over time.

At times of need, we borrow money from a bank or from a moneylender for a certain time. We pay some extra money for using their money. In other words, when we return the money borrowed, we not only pay the money we borrowed, but also pay some extra money for using their money.

The extra money we pay is called the Interest or Simple Interest (S.I.). Similarly, when we deposit money in a bank, the bank pays us interest as it uses our money.

Rate of interest: The interest charged for a certain amount for 1 year is called the rate of interest. For example the rate of interest is 10 %, then it means for $ 100 borrowed for 1 year, the interest charged is $ 10.

The money borrowed or invested or deposited is called the Principal amount.

The Principal together with the Interest is called the final amount or simply the Amount. Amount = Principal + Interest

The Interest depends upon three factors, namely,

(i)   Principal             (ii) Time             (iii)  Rate of interest

Remember :-

1Principal is denoted by the letter P.

2Rate of Interest is denoted by the letter R.

3Time is denoted by the letter T.

4Simple Interest is denoted by S.I.

5Amount is denoted by the letter A.


There are two methods of finding Simple Interest :-

Method 1: Simple Interest by Unitary Method,

Method 2: Simple Interest by Formula Method,