Simple Interest Introduction
When you deposit money in a bank or borrow money from someone, the bank or lender charges extra money for letting you use their funds. This extra money is called interest.
Simple Interest (SI) is the easiest type of interest to calculate. It is calculated only on the original amount (called the principal) — not on any previously earned interest.
In Class 5, you learn the basic formula for simple interest and solve problems involving savings, loans, and deposits.
What is Simple Interest Introduction - Class 5 Maths (Money)?
Key Terms:
- Principal (P): The original amount of money deposited or borrowed.
- Rate of Interest (R): The percentage charged per year. For example, 5% per year.
- Time (T): How long the money is deposited or borrowed (in years).
- Simple Interest (SI): The extra money earned or paid.
- Amount (A): The total money after adding interest. A = P + SI.
Simple Interest Introduction Formula
Simple Interest = (P × R × T) ÷ 100
Amount = Principal + Simple Interest
Where:
- P = Principal (in ₹)
- R = Rate of interest (% per year)
- T = Time (in years)
Solved Examples
Example 1: Example 1: Basic SI Calculation
Problem: Find the simple interest on ₹2,000 at 5% per year for 3 years.
Solution:
Step 1: SI = (P × R × T) ÷ 100
Step 2: SI = (2,000 × 5 × 3) ÷ 100
Step 3: SI = 30,000 ÷ 100 = ₹300
Answer: Simple Interest = ₹300
Example 2: Example 2: Finding the Amount
Problem: Ria deposits ₹5,000 in a bank at 6% per year for 2 years. Find the amount she gets back.
Solution:
Step 1: SI = (5,000 × 6 × 2) ÷ 100 = 60,000 ÷ 100 = ₹600
Step 2: Amount = P + SI = 5,000 + 600 = ₹5,600
Answer: Amount = ₹5,600
Example 3: Example 3: One Year Interest
Problem: Find the simple interest on ₹10,000 at 8% per year for 1 year.
Solution:
Step 1: SI = (10,000 × 8 × 1) ÷ 100 = 80,000 ÷ 100 = ₹800
Answer: SI = ₹800
Example 4: Example 4: Loan Problem
Problem: Aman borrows ₹3,000 at 10% per year for 2 years. How much interest does he pay?
Solution:
Step 1: SI = (3,000 × 10 × 2) ÷ 100 = 60,000 ÷ 100 = ₹600
Answer: Interest to pay = ₹600
Example 5: Example 5: Finding the Rate
Problem: Priya deposits ₹4,000 for 3 years and earns ₹480 as interest. Find the rate of interest.
Solution:
Step 1: SI = (P × R × T) ÷ 100, so R = (SI × 100) ÷ (P × T)
Step 2: R = (480 × 100) ÷ (4,000 × 3) = 48,000 ÷ 12,000 = 4
Answer: Rate = 4% per year
Example 6: Example 6: Finding Time
Problem: The simple interest on ₹6,000 at 5% per year is ₹900. Find the time period.
Solution:
Step 1: T = (SI × 100) ÷ (P × R)
Step 2: T = (900 × 100) ÷ (6,000 × 5) = 90,000 ÷ 30,000 = 3
Answer: Time = 3 years
Example 7: Example 7: Finding Principal
Problem: Kavi earned ₹720 as simple interest at 6% per year for 4 years. How much did he deposit?
Solution:
Step 1: P = (SI × 100) ÷ (R × T)
Step 2: P = (720 × 100) ÷ (6 × 4) = 72,000 ÷ 24 = ₹3,000
Answer: Principal = ₹3,000
Example 8: Example 8: Comparing Two Deposits
Problem: Aditi deposits ₹2,000 at 5% and Meera deposits ₹3,000 at 4%, both for 2 years. Who earns more interest?
Solution:
Aditi's SI = (2,000 × 5 × 2) ÷ 100 = ₹200
Meera's SI = (3,000 × 4 × 2) ÷ 100 = ₹240
Answer: Meera earns more interest (₹240 vs ₹200).
Example 9: Example 9: Total Repayment
Problem: Dev borrows ₹8,000 at 7% per year for 3 years. How much does he repay in total?
Solution:
Step 1: SI = (8,000 × 7 × 3) ÷ 100 = 1,68,000 ÷ 100 = ₹1,680
Step 2: Amount = 8,000 + 1,680 = ₹9,680
Answer: Total repayment = ₹9,680
Key Points to Remember
- Simple Interest = (P × R × T) ÷ 100
- Amount = Principal + Simple Interest
- P = Principal, R = Rate (% per year), T = Time (years).
- Simple interest is calculated only on the original principal, not on accumulated interest.
- To find R: R = (SI × 100) ÷ (P × T).
- To find T: T = (SI × 100) ÷ (P × R).
- To find P: P = (SI × 100) ÷ (R × T).
Practice Problems
- Find the simple interest on ₹4,000 at 5% per year for 2 years.
- Rahul deposits ₹7,500 in a bank at 8% per year for 3 years. Find the amount he gets back.
- Find the simple interest on ₹15,000 at 10% per year for 1 year.
- Neha pays ₹360 as interest on a loan of ₹3,000 for 2 years. Find the rate of interest.
- The SI on ₹5,000 at 6% per year is ₹1,500. Find the time.
- Priya earns ₹540 as interest at 9% per year for 3 years. What was the principal?
- A loan of ₹10,000 at 12% per year for 2 years — how much must be repaid in total?
- Compare: ₹5,000 at 4% for 3 years vs ₹4,000 at 5% for 3 years. Which gives more interest?
Frequently Asked Questions
Q1. What is simple interest?
Simple interest is the extra money earned or paid when money is deposited or borrowed. It is calculated on the original principal amount only.
Q2. What is the formula for simple interest?
SI = (P × R × T) ÷ 100, where P = principal, R = rate of interest per year, and T = time in years.
Q3. What is the difference between principal and amount?
Principal is the original money deposited or borrowed. Amount is the total at the end, which includes the principal plus the interest earned.
Q4. What does rate of interest mean?
Rate of interest is the percentage charged or earned per year on the principal. A rate of 5% means ₹5 is earned for every ₹100 deposited per year.
Q5. Can time be in months instead of years?
Yes, but you must convert months to years. For example, 6 months = 6/12 = 0.5 years. Then use the formula with T = 0.5.
Q6. Who pays interest — the borrower or the lender?
The borrower pays interest to the lender. When you put money in a bank, the bank is the borrower, so it pays you interest.
Q7. What is compound interest?
Compound interest is calculated on the principal plus previously earned interest. It is more complex than simple interest and is studied in higher classes.
Q8. Is simple interest always less than compound interest?
Yes, for the same principal, rate, and time (more than 1 year), simple interest is always less than compound interest because compound interest grows on accumulated interest.
