What is Simple Interest?
Simple Interest (SI) is the method of calculating interest on a principal amount. It is determined by multiplying the principal amount by the interest rate and the duration of the loan or investment. Unlike compound interest, simple interest does not earn interest on interest.
Simple Interest Formula
The formula for calculating simple interest is:
SI = (P × R × T) / 100
- SI = Simple Interest
- P = Principal Amount
- R = Rate of Interest per annum
- T = Time period in years
Example
If you invest ₹10,000 at an interest rate of 5% per annum for 3 years, the simple interest would be:
SI = (10000 × 5 × 3) / 100 = ₹1,500
The total amount payable would be ₹11,500.