Simple interest is interest worked out on the original principal only — principal × rate × time — so the same amount accrues each period and no interest is charged or earned on interest. MoneySense’s guide to the costs of borrowing does not use the term; it describes a flat rate, where interest is calculated on the original loan amount and the monthly interest stays the same even as the balance falls, and states that the effective interest rate on a flat-rate loan is higher than the advertised rate. In its example, SGD 90,000 at 2.5% flat costs SGD 11,250 in interest over 5 years.
Singapore · interest on MoneySense’s SGD 90,000 car loan at 2.5% flat over 5 years
SGD 11,250
Flat rate2.5%
Per yearSGD 2,250
7 yearsSGD 15,750
EIR vs ratehigher
Flat rate, 5 yearsSGD 11,250interest on SGD 90,000 at 2.5% flat (MoneySense)
Same loan, 7 yearsSGD 15,750SGD 1,258.93 a month, against SGD 1,687.50
Monthly rest, 5 yearsSGD 5,836SGD 90,000 at 2.5% on the reducing balance; Money Snap’s arithmetic
SGD 100 at 4%, 4 yearsSGD 116.00simple, Money Snap’s arithmetic; SGD 116.99 compounded yearly (MoneySense)
Doubling at 4%25 yearssimple, Money Snap’s arithmetic; about 18 compounded (Rule of 72)
In-house instalments11% to 27%flat, typically, for up to 72 months (MoneySense)
On this pageFlat, monthly rest, compoundSimple vs compoundWhat it means for youMisconceptionsRelated termsSources
Key takeaways
- Simple interest applies the rate to the original principal for every period, so interest = principal × rate × time and the amount is the same each period. That is Money Snap’s description: the MoneySense, MAS and CPF Board pages used here do not define the term. MoneySense’s flat rate follows the same pattern — interest is calculated on the original loan amount, and the monthly interest stays the same throughout even though the outstanding loan reduces — and MoneySense notes a flat rate is commonly used for car loans and personal term loans.
- With monthly rest, which MoneySense notes is commonly used for home loans, interest is calculated on the outstanding balance, so it reduces as the loan is paid down. MoneySense states that for flat-rate loans the effective interest rate (EIR) is higher than the advertised rate, because the advertised rate is applied to the original loan amount throughout, while for monthly rest loans the advertised rate is the same as the EIR. On Money Snap’s calculation, MoneySense’s 2.5% flat car loan over 5 years has the same SGD 1,687.50 instalment as a monthly rest loan at about 4.73% a year, which is the figure to set against a monthly rest advertised rate; expressed as an effective annual rate with monthly compounding it is about 4.84% (on that basis a 2.5% monthly rest loan is about 2.53%). Both figures are Money Snap’s arithmetic, not MoneySense’s.
- In MoneySense’s example, a SGD 90,000 car loan at 2.5% flat costs SGD 11,250 in interest over 5 years (SGD 1,687.50 a month) and SGD 15,750 over 7 years (SGD 1,258.93 a month) — on Money Snap’s arithmetic, 2.5% of the original SGD 90,000, or SGD 2,250, for each year. MoneySense notes that, generally, a shorter tenure means less interest overall but a higher monthly repayment, and that of two loans with the same principal, interest and duration, the one with smaller, more frequent instalments costs more: SGD 200 of interest on SGD 1,000 over a year is an EIR of 20.0% repaid once and 41.3% repaid in 12 instalments.
- MoneySense defines compound interest as interest earned on top of interest already earned: interest is added to the principal, and together they earn more interest. In its example, SGD 100 at 4% compounded every year grows to SGD 116.99 after 4 years; simple interest at 4% would give SGD 116.00, on Money Snap’s arithmetic. MoneySense and CPF Board describe the Rule of 72 — 72 divided by the interest rate — as a way to estimate the years for money to double with compounding: about 18 years at 4%. On the borrowing side, MoneySense notes that credit card interest not settled by the next payment due date also attracts interest in the next statement.
- Singapore Savings Bond interest is paid every 6 months (MAS): each coupon is half the annual coupon rate × the holding (with a pro-rated first coupon where the bond was not issued on the first calendar day of the month), paid into the bank account linked to the holder’s CDP Securities account, or into the SRS account for SRS investments. MAS sets the coupon rates so the average annual compounded return over the investment period is linked to the yield of a Singapore Government Security of the same tenor, noting two possible exceptions: an adjustment so that interest does not step down in any year, and rounding differences. CPF interest, by contrast, is computed monthly, credited by the following year and compounded annually.
Definition
What is simple interest?
How the interest each period behaves under the two loan methods MoneySense describes, and under compounding.
Flat rate (simple)the sameInterest on the original loan amount, so the monthly interest does not change as the loan is repaid. Commonly used for car loans and personal term loans.
Monthly restfallsInterest on the outstanding balance, so it reduces as the loan is paid down. Commonly used for home loans; the advertised rate is the same as the EIR.
CompoundgrowsInterest is added to the principal and earns interest too. In MoneySense’s SGD 100 example at 4%, the yearly interest rises from SGD 4 to SGD 4.50 by year 4.
“Simple interest” is Money Snap’s term for the flat-rate pattern on this page; MoneySense’s guide to the costs of borrowing compares a flat rate with monthly rest and does not use the phrase.
Worked example
SGD 100 at 4%: simple against compound
MoneySense’s compounding example runs four years; Money Snap extends it as SGD 100 × 1.04 to the power of the year, rounded to the cent only at the end, so later years can differ by a cent or two from rounding each year as MoneySense does. Simple: SGD 100 plus 4% of SGD 100 for each year. Compounded yearly: each year’s 4% is worked out on the amount at the start of that year. The simple balance doubles by the end of year 25; the Rule of 72 puts the compounded one at about 18 years.
| End of year | Simple | Compounded yearly | Interest on interest |
|---|---|---|---|
| Year 1 | SGD 104.00 | SGD 104.00 | SGD 0.00 |
| Year 2 | SGD 108.00 | SGD 108.16 | SGD 0.16 |
| Year 3 | SGD 112.00 | SGD 112.49 | SGD 0.49 |
| Year 4 | SGD 116.00 | SGD 116.99 | SGD 0.99 |
| Year 10 | SGD 140.00 | SGD 148.02 | SGD 8.02 |
| Year 18 (Rule of 72) | SGD 172.00 | SGD 202.58 | SGD 30.58 |
| Year 25 | SGD 200.00 | SGD 266.58 | SGD 66.58 |
SGD 90,000 over 5 years at 2.5%: flat rate against monthly rest
Flat rate, monthlySGD 1,687.50
Flat rate, interestSGD 11,250
Monthly rest, monthlySGD 1,597.26
Monthly rest, interestSGD 5,836
More on the flat rateSGD 5,414
The flat-rate figures are MoneySense’s. The monthly rest figures are Money Snap’s arithmetic at the same 2.5% charged on the reducing balance, for illustration, not a market rate. MoneySense states that on monthly rest the advertised rate is the same as the EIR, and on a flat rate the EIR is higher.
What it means for you
Where simple and compound interest show up
Car loansCar loan calculator
MoneySense notes flat rates are commonly used for car loans. Before a regulated hire-purchase or conditional sale agreement under the Hire-Purchase Act is entered into, the owner must give the prospective hirer a written statement that lists the applied interest rate and the effective interest rate as separate items. For a motor vehicle, a regulated agreement on or after 15 July 1994 covers one valued at not more than SGD 55,000 including GST and import and excise duty but excluding the COE, and not where the hirer is engaged in the trade or business of selling goods of the same nature or description.Personal loans and instalment plansRenovation loan calculator
MoneySense notes flat rates are also commonly used for personal term loans. It reports that merchants’ in-house instalment plans typically charge a flat interest rate of 11% to 27% for a repayment period of up to 72 months, while instalment plans offered by credit card companies are interest-free provided instalments are paid in full by the due date.Home loansMortgage calculator
Home loans commonly use monthly rest. In MoneySense’s example of SGD 600,000 over 20 years at a fixed 3.5%, repaid in equal monthly instalments of SGD 3,480, the interest part falls from SGD 1,750 in year 1 to SGD 1,490.47 in year 5, while the principal part rises from SGD 1,729.76 to SGD 1,989.29.Savings BondsSavings Bond rates
Apart from a pro-rated first coupon in some cases, each coupon is half the annual coupon rate × the holding, paid every 6 months into the linked bank or SRS account. A bond redeemed between payments earns accrued interest pro-rated by days: in MAS’s example, SGD 1,000 of bonds issued in January with a SGD 6 interest payment due in July, with a request in March to redeem them, returns the SGD 1,000 plus about SGD 3 of accrued interest for January to March.CPF savingsCPF interest rates
CPF interest is computed monthly, credited by the following year and compounded annually. For 1 Oct – 31 Dec 2026 the base rates are 2.5% on the Ordinary Account and 4% on Special, MediSave and Retirement Account savings, with extra interest on top on the first SGD 60,000 of combined balances (OA capped at SGD 20,000) at rates that depend on age; extra interest earned on OA balances goes into the Special or Retirement Account.Common misconceptions
Five things people get wrong
A flat rate is charged on what is still owed.
MoneySense states a flat rate is calculated on the original loan amount, so the monthly interest stays the same throughout even though the outstanding loan reduces. Interest on the outstanding balance is what MoneySense calls monthly rest.
A 2.5% flat rate costs the same as 2.5% on a reducing balance.
MoneySense states the EIR of a flat-rate loan is higher than the advertised rate. In its example SGD 90,000 at 2.5% flat costs SGD 11,250 in interest over 5 years; at 2.5% on monthly rest it would be about SGD 5,836, on Money Snap’s arithmetic.
A longer flat-rate loan costs less because each instalment is smaller.
In MoneySense’s example the 7-year loan has the smaller instalment, SGD 1,258.93 against SGD 1,687.50, but costs SGD 15,750 in interest against SGD 11,250 over 5 years, as the flat rate on the original amount runs for two more years.
Savings Bond interest is added to the bond and compounds.
According to MAS, each coupon is paid out every 6 months into the bank account linked to the holder’s CDP Securities account or into the SRS account, and is worked out as half the annual coupon rate × the holding (the first coupon may be pro-rated). MAS refers to compounding when it sets the rates: the average annual compounded return over the investment period is linked to the same-tenor SGS yield.
A licensed moneylender can charge interest on the original loan for the whole term.
Under rule 11 of the Moneylenders Rules 2009, interest is computed on the monthly outstanding balance of principal, after deducting payments appropriated to principal, at a nominal maximum of 4% a month. Under rule 12B, the 4% caps on interest and late interest, and the rule 12A cap on aggregate interest and fees, do not apply to business loans.
Sources and reviewChecked against MoneySense, MAS, CPF Board and Singapore Statutes Online on 2026-10-01
- MoneySense — Costs of borrowing: flat rate, monthly rest and Effective Interest Rate — flat rate, monthly rest, the EIR and the loan examples
- MoneySense — Effects of compounding interest — compound interest, the SGD 100 example and the Rule of 72
- MoneySense — The real cost of instalment payment plans — flat rates on in-house plans
- MoneySense — Understanding credit card interest and charges — interest on unpaid interest
- MAS — Investing in Savings Bonds — interest every 6 months, paid to the bank or SRS account
- MAS — Singapore Savings Bonds FAQs — how coupon rates are set and accrued interest on redemption
- MAS — Savings Bonds technical specifications — the coupon formula
- CPF Board — How is my CPF interest computed and credited? — monthly computation, annual compounding
- CPF Board — Multiplying your CPF savings with compound interest — the Rule of 72
- CPF Board — 4% floor extended to 31 December 2027 (22 Sep 2026) — Q4 2026 base rates and extra interest
- Singapore Statutes Online — Hire-Purchase Act 1969 — regulated agreements and the statement before signing
- Singapore Statutes Online — Moneylenders Rules 2009 — rules 11, 12A and 12B on interest
Official MoneySense, MAS and CPF Board material and Singapore legislation; the simple-interest, monthly rest and effective-rate figures are Money Snap’s arithmetic. For general information only. Not financial advice.
This page is provided for educational and informational purposes only. It does not constitute financial advice. All figures and worked examples are estimates for illustrative purposes, are subject to change, and do not reflect any individual’s circumstances. Always refer to MoneySense, MAS and the CPF Board and seek independent professional advice before making any financial decisions.