# Simple Interest Calculator

## Simple Interest Calculator

A **Simple Interest Calculator** is a tool that helps you quickly calculate the simple interest earned on an investment or the interest due on a loan over a specified period. This calculator automates the computation using the simple interest formula and provides the result without manual calculations.

### Definition of Simple Interest

Simple Interest is a method of calculating the interest charge on a loan or the interest earned on an investment. The interest is computed only on the principal amount, or on that portion of the principal amount that remains unpaid.

#### Formula for Simple Interest

The formula to calculate simple interest is:

\[ \text{Simple Interest} (SI) = P \times R \times T \]

**Where:**

– \( P \) is the Principal amount (the initial sum of money)

– \( R \) is the Rate of Interest per period (expressed as a decimal or percentage)

– \( T \) is the Time the money is invested or borrowed for (in years)

#### Example

Let’s consider an example to calculate the simple interest.

**Example Problem:**

Suppose you invest \$1,000 in a savings account that pays an annual interest rate of 5% for 3 years. What is the simple interest earned?

**Given:**

– Principal (P) = \$1,000

– Rate of Interest (R) = 5% = 0.05

– Time (T) = 3 years

#### Using the formula:

\[ \text{SI} = P \times R \times T \]

\[ \text{SI} = 1000 \times 0.05 \times 3 \]

**Calculation**:

\[ \text{SI} = 1000 \times 0.05 = 50 \]

\[ \text{SI} = 50 \times 3 = 150 \]

**Simple Interest Earned:**

The simple interest earned over 3 years is \$150.

#### Real-Life Application

Simple interest is commonly used in various real-life financial situations, including loans, savings accounts, and investments. Here’s how simple interest works in these contexts:

### 1. Loans

When you borrow money, simple interest is often used to determine the interest you’ll pay on the principal amount.

**Example: Personal Loan**

**Principal (P):**$5,000**Annual Interest Rate (R):**10%**Loan Term (T):**3 years

Using the simple interest formula:

\[ SI = P \times R \times T \]

\[ SI = 5000 \times 0.10 \times 3 \]

\[ SI = 500 \times 3 \]

\[ SI = 1500 \]

You would pay $1,500 in interest over the 3-year loan term.

### 2. Savings Accounts

Banks often use simple interest to calculate the interest earned on savings accounts.

**Example: Savings Account**

**Principal (P):**$2,000**Annual Interest Rate (R):**2%**Time (T):**5 years

\[ SI = P \times R \times T \]

\[ SI = 2000 \times 0.02 \times 5 \]

\[ SI = 40 \times 5 \]

\[ SI = 200 \]

You would earn $200 in interest over 5 years.

### 3. Investments

Simple interest can also be applied to short-term investments where interest is calculated on the original principal.

**Example: Short-term Bond**

**Principal (P):**$10,000**Annual Interest Rate (R):**3%**Investment Period (T):**2 years

Using the simple interest formula:

\[ SI = P \times R \times T \]

\[ SI = 10000 \times 0.03 \times 2 \]

\[ SI = 300 \times 2 \]

\[ SI = 600 \]

You would earn $600 in interest over the 2-year period.