Simple & Compound Interest Calculator

How Simple & Compound Interest Calculator Works

This calculator shows, side by side, how much the same principal, rate, and time period earns under simple interest versus compound interest. Simple interest is calculated only on the original principal every period; compound interest is calculated on the principal plus all interest already earned, so it grows faster the more often it compounds and the longer it runs.

Formula & Method

Simple interest uses interest = P × r × t, where P is the principal, r is the annual rate as a decimal, and t is the time in years -- the total is simply P + interest. Compound interest uses total = P × (1 + r ÷ n)n × t, where n is how many times per year interest compounds (annually, semi-annually, quarterly, monthly, or daily, as selected), with interest earned equal to total − P.

Worked Example

For a principal of $100,000 at 8% annual interest over 5 years, compounded annually: simple interest gives $100,000 × 0.08 × 5 = $40,000 interest, for a total of $140,000. Compound interest gives $100,000 × (1.08)⁵ ≈ $146,932.81, which is $46,932.81 in interest -- about $6,932.81 more than simple interest earns over the same 5 years.

Frequently Asked Questions

Why does compound interest earn more than simple interest on the same numbers?

Simple interest is always calculated on the original principal alone, so it earns the same amount every period. Compound interest is calculated on the principal plus all interest accumulated so far, so each period's interest is a little larger than the last -- the gap between the two grows with both the rate and the length of time.

Does changing the compounding frequency change simple interest too?

No -- simple interest doesn't depend on compounding frequency at all, since it's always based on the original principal only. The Compounding Frequency selector only affects the compound interest calculation, where compounding more often (e.g. monthly or daily instead of annually) produces a slightly higher total for the same nominal annual rate.

Which type of interest applies to my real savings account or loan?

Most real savings accounts, fixed deposits, and loans use compound interest with a stated compounding frequency (check your account terms for "monthly," "quarterly," etc.). Simple interest is less common in everyday banking but does show up in some short-term loans and certain bonds -- this calculator lets you compare both so you can see the difference for your own numbers.

Is a higher compounding frequency always significantly better?

It helps, but with diminishing returns -- going from annual to monthly compounding raises the total more than going from monthly to daily does, because the extra interest earned per additional compounding period shrinks as the periods get shorter. Over short time periods or low rates, the difference between frequencies can be quite small.