Compare simple interest with compound interest on a single principal. Simple interest grows only on the original amount. Compound interest also earns interest on amounts credited earlier. This tool does not add recurring deposits or reproduce a lender’s repayment schedule.
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Before you enter your numbers
Enter principal, nominal annual rate, term and interest type. For compound interest, choose the number of compounding periods per year. Ensure the rate is a nominal rate on the same convention; quoted APY already incorporates compounding.
- Principal
- Annual interest rate
- Years
- Interest type
Input reference
- Principal: The initial principal available at the start. Recurring deposits, if supported on this page, are entered separately. Do not multiply the principal by the number of years; the formula applies growth over the chosen term.
- Annual interest rate: An assumed nominal annual rate, divided by 12 in monthly projections. It is held constant. It is not a guaranteed yield, and the default should be replaced with an assumption suited to your scenario.
- Years: The duration of the calculation in years. Longer periods give growth or withdrawals more time to operate. This is a chosen modeling horizon, not a prediction of an investment term or your lifetime.
Formula and calculation method
Simple ending balance = principal × (1 + annual rate × years). Compound ending balance = principal × (1 + annual rate / frequency)^(frequency × years). Rates are decimals in these formulas. Interest earned is ending balance minus principal.
Worked example
On 10,000 at 5% for ten years, simple interest gives 15,000. Annual compounding gives about 16,289. The difference comes from interest earning additional interest, not from a higher stated annual percentage.
How to interpret the result
The result panel reports ending balance, interest earned and effective growth.
More frequent compounding raises the effective yield for a positive fixed nominal rate. Actual financial contracts may use daily balances, day-count conventions, rate tiers, fees or early-withdrawal adjustments. Those contract details can produce a different result from this textbook model.
Why compounding frequency changes the result
For compound interest, the tool supports annual, semiannual, quarterly, monthly and daily compounding. More frequent compounding slightly increases the effective annual growth rate when the stated annual rate is positive.
Simple interest is different: interest is calculated only on the original principal, so compounding frequency does not apply. The calculator automatically ignores the frequency choice when Simple is selected.
Nominal rate, effective yield and time basis
A nominal annual rate is divided by the number of compounding periods. An effective annual yield already reflects compounding over a year. Entering an effective yield as a nominal rate and then compounding again gives a slightly overstated result.
A term of 0.5 means half a year in this mathematical model. It does not identify exact calendar dates, leap years or a bank’s day-count convention. Use the actual contract method for a payment dispute or precise accrued-interest amount rather than treating this general formula as a statement reconciliation.
Choose simple or compound interest based on the agreement you are modeling
Simple interest grows only on the original principal. Compound interest credits interest to the balance so later interest can be earned on earlier interest. Loans and deposit products may use more detailed daily-balance or amortization methods, so the textbook formula should match the contract before you rely on the result.
If a bank quotes APY, remember that APY already reflects compounding over a year. If a contract quotes a nominal annual rate, use the stated compounding frequency. Mixing the two conventions can overstate or understate the ending balance.
Use The Result In The Next Calculation
Use simple interest when interest is calculated only on principal and compound interest when prior interest also earns interest. For recurring deposits, move to the compound-interest or savings calculator because this tool focuses on the principal amount.
Retirement planning guides · Calculation methodology
Rules and limits can change. Use these primary sources to verify time-sensitive details.
Interest Calculator FAQs
Can this calculate loan APR or an amortized loan payment?+
No. A loan with repayments requires cash-flow timing and possibly fees. This page applies simple or compound growth to a single unchanged principal.
Where can I check the assumptions behind this result?+
Check the formula and limitations sections on the Interest Calculator page for the assumptions specific to this tool. The methodology page explains conventions shared across calculators, and Investor.gov: compound interest inputs and compounding is the reference for any time-sensitive statutory or product rule mentioned here.
What does the Interest Calculator result include?+
The result focuses on ending balance, interest earned and effective growth. It is calculated from the inputs shown on this page rather than from live account, market or government data. Read the formula and limitations section before transferring the result into another planning tool.
What should I change when testing another Interest Calculator scenario?+
Change one major assumption at a time so you can see what drives the result. Useful inputs to test include Principal, Annual interest rate, Years, Interest type. Use a conservative case alongside your central estimate rather than relying on only the most favorable combination.
Can the Interest Calculator replace an official statement or professional advice?+
No. It is a planning calculator. This calculator assumes a simplified annual rate and does not include fees, changing rates or payment schedules unless they are explicitly modeled. Use official statements and current rules when an exact legal, tax, pension or account figure is required.