Interest Calculator
Calculate simple or compound interest for any principal, rate, and time period. Supports annual, monthly, and daily time periods and all compounding frequencies.
Interest Calculator
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Enter Values
Effective Annual Rate (EAR)
5.0000%
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Total Accrued
$12,500
Growth Multiple
1.25x
Breakdown
The Formula
Simple interest applies the rate only to the principal — the relationship is linear, so the total interest is exactly the same every year. Compound interest applies the rate to the growing balance, meaning you earn interest on your previously earned interest — this creates an exponential growth curve that accelerates over time.
Variable Definitions
Principal
The original amount borrowed or invested. This is the baseline from which all interest is calculated. In simple interest, interest is always based on this original amount. In compound interest, the base grows each period.
Annual Interest Rate
The nominal interest rate as a decimal (e.g., 5% = 0.05). For compound interest, this rate is divided by the compounding frequency n to get the periodic rate applied each compounding period.
Time (years)
The length of the period in years. Can be fractional when using months or days. Time is the most powerful variable in compounding — the longer the time horizon, the more dramatic the exponential growth.
Compounding Frequency
How many times per year interest is calculated and added to the balance. Common values: 1 (annual), 12 (monthly), 365 (daily). More frequent compounding results in a higher effective annual rate because interest begins earning interest sooner.
Total Accrued Amount
The final balance including both the original principal and all accumulated interest. Also called the future value. The difference between A and P is the total interest earned or owed.
How to Use This Calculator
- 1
Enter the principal (starting amount).
- 2
Enter the annual interest rate.
- 3
Select the time unit (years, months, or days) and enter the time period.
- 4
Select Simple or Compound interest.
- 5
For compound interest, select how often interest compounds (monthly is the most common for loans and savings accounts).
- 6
Review the effective annual rate (EAR) — this is the true annual rate that accounts for compounding frequency, which you should use to compare different products.
Common Applications
- Calculate the total interest earned on a savings account or charged on a loan using either simple or compound interest formulas.
- Compare simple versus compound interest on the same principal to see how compounding supercharges long-term investment growth.
- Determine the effective annual rate to compare financial products with different compounding frequencies on an apples-to-apples basis.
Simple interest grows linearly on the principal only; compound interest earns interest on interest, creating exponential growth that accelerates over time
Understanding the Concept
Simple interest is straightforward: you pay or earn interest only on the original principal. Car loans and some personal loans use simple interest. The total cost is predictable and linear. Compound interest is far more powerful: you earn interest on previously earned interest, causing exponential growth. Savings accounts, investments, mortgages, and credit cards all use compound interest. The more frequently interest compounds, the larger the effective annual rate — daily compounding yields more than annual compounding at the same stated rate. The compound advantage (shown as "Interest Earned on Interest" in the results) quantifies exactly how much extra you earn from compounding versus simple interest. This difference is small in year one but grows dramatically over time, reflecting Albert Einstein's famous characterization of compound interest as the "eighth wonder of the world."
Frequently Asked Questions
Sources & References
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