Simple Interest Calculator
Simple Interest & Total Amount
Understanding Simple Interest
Simple interest is a straightforward method of calculating the interest charge on a loan or investment. It is calculated based on the initial principal amount, the annual interest rate, and the duration for which the money is borrowed or invested. Unlike compound interest, simple interest does not earn interest on itself; it is always calculated on the original principal amount.
How to Calculate Simple Interest:
The formula for simple interest is:
Simple Interest (SI) = (P × R × T) / 100
- P = Principal Amount (the initial sum of money)
- R = Annual Interest Rate (expressed as a percentage)
- T = Time (the duration in years)
To find the total amount after the interest is applied, you add the simple interest to the principal amount:
Total Amount (A) = P + SI
Example Calculation:
Let's say you invest $10,000 (Principal) at an annual interest rate of 5% (Rate) for 3 years (Time).
- P = $10,000
- R = 5%
- T = 3 years
Using the formula:
SI = ($10,000 × 5 × 3) / 100 = $1,500
The simple interest earned over 3 years is $1,500.
The total amount you will have after 3 years is:
A = $10,000 + $1,500 = $11,500
When is Simple Interest Used?
Simple interest is commonly used for short-term loans, savings accounts, and certain types of bonds. It is easier to calculate and understand compared to compound interest, making it a good choice for straightforward financial scenarios.