Simple interest: the formula, worked examples and how to find rate or time

When you put money in a savings account or borrow it, the bank adds a payment called interest. In school maths the simplest version is simple interest, where the interest is worked out on the original money only.

The formula

Simple interest = P × R × T ÷ 100

• P is the principal: the money you start with.
• R is the rate: the percent charged or earned per year.
• T is the time in years.

The amount is what you have at the end: Amount = Principal + Interest.

Worked examples

1. Find the interest. ₹2,000 at 5% per year for 3 years. SI = 2,000 × 5 × 3 ÷ 100 = ₹300. The amount is ₹2,000 + ₹300 = ₹2,300.

2. Find the interest and amount. ₹5,000 at 8% per year for 2 years. SI = 5,000 × 8 × 2 ÷ 100 = ₹800. The amount is ₹5,800.

3. Find the rate. The interest on ₹4,000 for 3 years is ₹600. Rearrange the formula: R = SI × 100 ÷ (P × T) = 600 × 100 ÷ (4,000 × 3) = 60,000 ÷ 12,000 = 5%.

4. Find the time. The interest on ₹3,000 at 6% per year is ₹900. T = SI × 100 ÷ (P × R) = 900 × 100 ÷ (3,000 × 6) = 90,000 ÷ 18,000 = 5 years.

5. Time in months. ₹6,000 at 10% per year for 6 months. Six months is half a year, so T = 0.5. SI = 6,000 × 10 × 0.5 ÷ 100 = ₹300.

Ways to check your answer

• The interest should not be bigger than the principal for a short time and a small rate. If you get a huge answer, check that the time is in years.
• Work in two steps: the interest for one year is P × R ÷ 100. Then multiply by the number of years. For example 1 the yearly interest is ₹100, so three years is ₹300.

Simple interest and compound interest

With simple interest the interest each year is the same. With compound interest the interest is added to the money each year, so later years earn interest on interest. You can explore the difference with the compound interest calculator. This guide is about school maths, not financial advice: real loans and accounts have their own rules and charges.

Practise it

• Simple interest practice online: instant feedback and a mastery score.
• Simple interest worksheets with answers.
• Percent Power for the percentage skills behind it.

Common questions

What do P, R and T stand for?

P is the principal (starting money), R is the rate of interest per year in percent, and T is the time in years.

What is the difference between interest and amount?

The interest is the extra money. The amount is the principal plus the interest.

What if the time is given in months?

Change it to years by dividing by 12. Nine months is 9 ÷ 12 = 0.75 years.

Is simple interest used in real life?

Some short loans and school-level examples use it. Many accounts use compound interest instead, so always read the terms of the account or loan.

This guide is general information. For exams, follow your school, teacher and official exam board, and use your own judgement about what suits your child.