Interest Calculator
Calculate compound interest earned on any principal amount. Compare simple vs compound interest and see how compounding frequency affects your returns.
$
%
yrs
Total Interest Earned
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Final Amount —
Simple Interest (comparison) —
Compounding Bonus —
How to Use This Calculator
- Enter the Principal Amount — your starting balance.
- Enter the Annual Interest Rate.
- Enter the Time Period in years.
- Select the Compound Frequency — monthly is typical for savings accounts.
- See total interest earned and compare it to simple interest.
Formula
Compound Interest: A = P(1 + r/n)^(nt)
Simple Interest: I = P × r × t
- P = Principal, r = Annual rate, n = Compounding periods/year, t = Years
Example
Example: $10,000 at 5% annual rate, 5 years, monthly compounding.
- Compound Interest Earned: $2,834
- Final Amount: $12,834
- Simple Interest (comparison): $2,500
- Compounding Bonus: +$334
Frequently Asked Questions
- Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus previously earned interest. Over time, compounding produces significantly more growth.
- More frequent compounding means slightly higher returns. Daily compounding on $10,000 at 5% for 5 years yields $12,840, vs $12,834 with monthly compounding. The difference grows larger with higher rates and longer periods.
- EAR is the actual annual rate after accounting for compounding. A 5% nominal rate compounded monthly has an EAR of 5.116%. This is the true return you earn on an investment.
- Real interest return = Nominal rate − Inflation rate. If you earn 5% and inflation is 3%, your real return is only about 2%. Always consider inflation when evaluating long-term savings and investment returns.
- Daily compounding is best, but the difference from monthly is minimal. More important is the APY (Annual Percentage Yield), which already accounts for compounding frequency. Always compare APY, not nominal rates.