What is Simple Interest, A = P (1+rt)
The rate at which you borrow or lend money is called the simple interest. If a borrower takes money from a lender, an extra amount of money is paid back to the lender. The borrowed money which is given for a specific period is called the principal. The extra amount which is paid back to the lender for using the money is called the interest.
You calculate the simple interest by multiplying the principal amount by the number of periods and the interest rate. Simple interest does not compound, and you don’t have to pay interest on interest. In simple interest, the payment applies to the month’s interest, and the remainder of the payment will reduce the principal amount.
What is a Simple Interest Calculator?
A simple interest calculator is a utility tool that calculates the interest on loans or savings without compounding. You may calculate the simple interest on the principal amount on a daily, monthly, or yearly basis. The simple interest calculator has a formula box, where you enter the principal amount, annual rate, and period in days, months, or years. The calculator will display interest on the loan or the investment.
How Does Simple Interest Calculators work?
The simple interest calculator will show the accrued amount that includes both principal and the interest. The simple interest calculator works on the mathematical formula:
A = P (1+rt)
- P = Principal Amount
- R = Rate of interest
- t = Number of years
- A = Total accrued amount (Both principal and the interest)
Interest = A – P.
Let’s understand the workings of the simple interest calculator with an example. The principal amount is Rs 10,000, the rate of interest is 10% and the number of years is six. You can calculate the simple interest as:
A = 10,000 (1+0.1*6) = Rs 16,000.
Interest = A – P = 16000 – 10000 = Rs 6,000.
How to Use the ClearTax Simple Interest Calculator?
The ClearTax Simple Interest Calculator shows you the simple interest you have earned on any deposits. To use the simple interest calculator:
- You must select the interest type as simple interest.
- You enter the principal amount.
- You then enter the annual rate of interest.
- You must choose the time duration in days, weeks, quarters, or years.
- The ClearTax Simple Interest Calculator will show you the simple interest you have earned on the deposit.
Benefits of Simple Interest Calculator
- The ClearTax Simple Interest Calculator shows you the simple interest on your deposit in seconds.
- You can compare the simple interest rates against the compound interest rates and determine the interest you pay on any loan.
Frequently Asked Questions
Why does the ClearTax Simple Interest Calculator ask you to choose the frequency of compounding?
The ClearTax Simple Interest Calculator asks you to fill the compounding frequency from the daily, weekly, monthly, quarterly and other options. Quarterly compounding means interest is calculated and paid every three months. The ClearTax Simple Interest Calculator wants to know how often interest is added to your loans each year.
Is ClearTax Simple Interest Calculator easy to use?
You can use the ClearTax Simple Interest Calculator from the comfort of your home. It is an easy to use tool where you enter the compounding frequency, principal amount, interest rate and the period. The ClearTax Simple Interest Calculator shows the interest you earn on the deposit in seconds.
How does ClearTax Simple Interest Calculator help you to choose an investment?
The ClearTax Simple Interest Calculator shows you the compound interest that you earn on investments. It helps you to select the financial instruments that offer a higher interest rate based on your investment goals and risk tolerance.
