Simple interest (SI) is a method of calculating either the cost involved with borrowed money or the earnings involved with deposited money. It is only applicable based on the sum of money deposited or borrowed, also known as the principal amount.
In mathematical terms, SI is an amount determined by multiplying the principal amount with the interest rate and tenure. Its formula is quite straightforward, enabling easy manual calculations. However, you can use an automated, simple interest calculator rather than depending on manual calculations.
Now that you know what simple interest is, let’s dive into details related to its calculator.
A simple interest calculator is an online financial tool that determines the amount of interest earned or paid on a timely basis. This tool uses the input on the principal amount, interest rate and time period set by an individual and automatically displays accurate results within a few seconds.
You can use it as a simple interest EMI calculator to determine the interest you pay or earn by the loan tenure’s end. Alternatively, you can also use it to calculate returns on your investment.
A simple interest calculator functions using mathematical formulas and all details entered by an individual, such as the principal amount, rate and tenure. Its results include an amount of interest or a total amount, including both principal and interest.
Take a look at the mathematical formulas used by this calculator in order to understand how it functions.
A simple interest formula calculator determines the amount of interest in the following way:
Interest = Principal Amount * Rate of Interest * Tenure
Here, in this formula, P = Principal Amount (sum of money borrowed or deposited), R = Rate of Interest (applicable as per a bank) and T = Tenure (time period or duration) of investment or loan.
Using the amount of interest, you can further calculate the total amount that will accrue by the end of the tenure. To do so, follow the given formula:
A = P(I + rt)
Here, A = Total Accrued Amount, P = Principal Amount, r = Rate of Interest and t = time period.
On that note, you must know Total Accrued Amount (A) = Principal Amount (P) + Interest (I).
We already know that I = Prt. Therefore, I = Prt.
Then, the formula of the total accrued amount will become A = P + Prt, which can be rewritten as A = P(1+rt).
Let’s understand this formula in a better way using an example.
Suppose you want to invest ₹1,000 in an FD scheme, offering an 8% annual rate of interest for a time period of 5 years.
By applying the above formula, we can easily find out the amount of interest you will earn from making such an investment.
Here, the Principal Amount (sum of money you want to invest) = ₹1,000, the Rate of Interest (payable by a bank) = 8% and the Tenure (the time period of an FD investment) = 5 years.
If we put these values into the formula, we will get Simple Interest = ₹(1,000 * 8 * 5) /100 = ₹400.
Hence, you will receive an interest income of ₹400 from this FD investment.
If you want to determine the total maturity amount, apply the values to the other formula.
A = P(1+rt) = ₹[1,000(1+0.08*5)] = ₹[1000 + 400] = ₹1,400.
The total accrued or maturity amount of your investment is ₹1,400.
The advantages of using a simple interest rate calculator are numerous and varied. Here is a list of some of the most common advantages of this tool:
A simple interest calculator accurately determines the interest amount, irrespective of the currency value.
A manual calculation of interest is a time-consuming process. The calculator helps in saving time and resources for an individual by displaying results in a matter of seconds.
It enables individuals to figure out their payments or earnings in advance so that they can plan their finances accordingly.
This tool facilitates the comparison of different interest rates, helping you choose the most suitable investment scheme as per your financial requirements.
Here’s how you can use a simple interest calculator for your purpose:
Step 1:Navigate to the Stable Money Simple Interest calculator page.
Step 2:Enter the principal amount or the sum of money you want to deposit. You can also use the slide bar to input the amount.
Step 3:Enter or use the slide bar to input the applicable annual rate of interest.
Step 4:Choose a tenure or time duration for your deposits in terms of years.
The simple interest calculator will automatically display the results once you have entered all the above details.
Hopefully, now you have a clear idea about a simple interest calculator and how you can use it for your financial planning. Although a reliable tool, its accuracy depends upon the parameters set by an individual. Therefore, carefully enter all the details into this calculator to get accurate results.
No, the amount of interest does not change over time under the simple interest method. Since no compounding power is involved, the amount remains constant throughout the time period.
Under the simple interest method, monthly interest is calculated by dividing the annual interest amount by the number of months in a year, which is 12. interest is better than simple interest. This is because unlike simple interest, where you calculate interest only on the principal amount, in compound interest, the interest earned on the principal amount is added upon previously accrued interest, thus helping you generate wealth faster
Yes, a simple interest calculator is free to use and readily available online. You can use this tool as many times as you want throughout the day.
Yes, there are two methods of calculating interest: simple and compound interest methods. The formula of compound interest is A = P (1+r/n) ^ (n * t), where A = Maturity Amount, P = Principal Amount, r = Rate of Interest, n = Number of times interest is compounded in a year and t = Number of years.
Under the simple interest method, an amount of interest accumulates slower than in the compound interest method. This is because there is no compounding power involved.
