Interest Calculator
Calculate simple or compound interest on a deposit or loan, and compare both side by side
By Waqar Mushtaq · Last updated:
Interest is what a lender charges a borrower, or what a bank pays a depositor, for the use of money over time -- and there are two fundamentally different ways to calculate it. Simple interest is charged only on the original principal for the life of the loan or deposit. Compound interest is charged on the principal plus any interest already added, so the amount it's calculated on grows at every compounding period. This calculator computes the interest and ending balance for whichever type and compounding frequency you choose, and lines up every option side by side so you can see exactly how much that choice is worth in dollars.
Simple vs. Compound Interest Formulas
O(1) calculationSimple interest -- I = interest · P = principal · r = annual rate (decimal) · t = years
Compound interest -- A = ending balance · n = compounding periods per year
Simple interest multiplies the principal by the rate and the time, full stop -- the interest earned in year 5 is identical to the interest earned in year 1, since it's always calculated on the same starting principal.
Example: $1,000 at 5% simple interest for 5 years. I = 1000 × 0.05 × 5 = $250 interest, for an ending balance of $1,250.
Compound interest recalculates the balance at every compounding period, so each period's interest is added to the principal before the next period's interest is calculated on it -- interest earns interest.
Example: $1,000 at 5% compounded annually for 5 years. A = 1000 × (1 + 0.05/1)^(1×5) = 1000 × 1.2763 = $1,276.28, or $276.28 interest -- $26.28 more than simple interest over the same term, purely from compounding.
The more frequently interest compounds (annually → monthly → daily), the closer the result gets to continuous compounding, A = Pe^(rt), which is the mathematical limit as the number of compounding periods per year approaches infinity.
Use Cases
Comparing Savings Account and CD Offers
Banks advertise compounding frequency differently (daily, monthly, quarterly) -- use the comparison table to see exactly how much more a daily-compounding account earns over a monthly-compounding one at the same stated rate.
Understanding Short-Term Loans
Many short-term personal loans and some bonds use simple interest rather than compound, which is why the choice of interest type -- not just the rate -- materially changes the total cost of borrowing.
Estimating Investment Growth
Compound interest is the core mechanism behind long-term investment growth. Comparing 5-year and 30-year results at the same rate shows why starting early matters more than the rate itself for long horizons.
Checking the Fine Print on Promotional Rates
A "5% interest" offer can mean very different totals depending on whether it compounds and how often -- running the same principal and rate through every mode in the table surfaces that difference before signing anything.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal, so it grows by the same dollar amount every period. Compound interest is calculated on the principal plus all previously added interest, so it grows by an increasing dollar amount each period -- the longer the time horizon, the bigger that gap becomes.
Why does compounding frequency matter if the rate stays the same?
A higher compounding frequency means interest gets added to the balance more often, and each addition starts earning its own interest sooner. Daily compounding therefore produces a slightly higher ending balance than monthly or annual compounding at the identical stated annual rate -- the comparison table shows the exact dollar difference for your numbers.
What does "continuous compounding" mean?
Continuous compounding is the theoretical limit of compounding frequency as the number of periods per year approaches infinity, using the formula A = Pe^(rt). No real account compounds continuously, but it's a useful upper bound -- no finite compounding frequency can ever produce a higher balance than continuous compounding at the same rate.
Which type of interest is better for a borrower vs. a saver?
A borrower generally prefers simple interest, since the interest owed never grows faster than linearly. A saver or investor generally prefers compound interest -- and the most frequent compounding available -- since that's what makes a deposit or investment grow faster than linearly over time.
Methodology
The formula above is implemented as a standalone module covered by unit tests, so its worked examples are re-checked on every change to the site. It is verified against the authoritative sources listed below.
Not financial advice. This calculator is a general informational tool and cannot account for your individual circumstances. See the terms of use.
Maintained by Waqar Mushtaq. Spotted a result that looks wrong? Report it and it becomes a failing test.