Calculate simple interest and compound interest. See exactly how your savings or debt grows over time.
This tool calculates simple or compound interest earned or owed on a principal amount over time. It's used broadly for savings account projections, loan interest estimation, and understanding the fundamental difference between simple and compound growth.
Simple Interest = Principal × Rate × Time. Compound Interest: Final Amount = Principal × (1 + r/n)^(n×t), where r is the annual rate, n is the number of compounding periods per year, and t is time in years.
Enter the principal amount, interest rate, time period, and choose simple or compound interest (and compounding frequency if compound), and the calculator returns the interest earned and final amount.
Example: $10,000 at 5% annual simple interest for 3 years earns $10,000 × 0.05 × 3 = $1,500 in interest. The same amount compounded annually would earn slightly more, approximately $1,576, due to interest earning interest.
What's the fundamental difference between simple and compound interest? Simple interest is calculated only on the original principal throughout the entire period, while compound interest is calculated on the principal plus any previously accumulated interest, causing compound growth to accelerate over time compared to simple interest.
Why does compounding frequency matter? More frequent compounding (like monthly versus annually) results in slightly higher total interest for the same nominal annual rate, since interest is added to the principal more often, allowing it to start earning its own interest sooner.
Where is simple interest commonly used? Simple interest is common in some short-term loans and certain bonds, where the calculation stays straightforward and predictable without compounding complexity.
Where is compound interest commonly used? Most savings accounts, investments, and many loans (including mortgages and credit cards) use compound interest, since it's the standard method for most modern financial products.
Why is understanding compound interest important for both saving and borrowing? Compound interest works in your favor when saving or investing (money grows faster over time) but works against you when borrowing (debt grows faster if unpaid), making it a fundamental concept for sound personal finance decisions in both directions.