Interest Calculator — Free Simple & Compound Tool

How to Use the Interest Calculator

This versatile calculator handles both simple and compound interest in a single tool. Whether you want to estimate earnings on a savings account, compare loan costs, or understand the impact of compounding frequency, follow these steps for comprehensive results.

1. Choose your interest type. Select Compound Interest or Simple Interest using the toggle at the top of the calculator. Compound interest is the default because it applies to most savings accounts, investments, and loans. Simple interest is common for short-term loans and some auto financing.
2. Enter the principal amount. This is your starting balance, whether it is a deposit into a savings account, the face value of a bond, or the original amount of a loan. You can enter any positive amount.
3. Set the annual interest rate. Enter the percentage rate. For savings accounts, use the APY quoted by your bank. For loans, use the APR from your lender. Rates typically range from under 1% for basic savings to 20%+ for credit cards.
4. Specify the time period. Enter the number of years you plan to keep the money invested or the duration of your loan. Longer periods show more dramatic differences between simple and compound interest.
5. Select compounding frequency (compound only). When compound interest is selected, choose how often interest compounds. Monthly is the most common for savings accounts. Quarterly is typical for some investment products. The comparison chart shows the inactive type in gray for easy comparison.
6. Review your results. The calculator shows your final balance, total interest earned, a growth chart comparing both interest types, and a year-by-year breakdown table showing exactly how your money grows over time.

Change any input to instantly update all results. The gray comparison line on the chart always shows the alternative interest type, so you can visually assess the cost or benefit of compounding at any point.

Understanding Interest Formulas

Interest calculations form the backbone of personal finance. Mastering both formulas empowers you to evaluate any financial product and negotiate better terms.

Simple Interest Formula

Where P is principal, R is annual rate as a decimal, and T is time in years. Interest grows linearly, adding the same dollar amount each year.

Compound Interest Formula

Where each variable represents:

• A = Final amount (principal + interest)
• P = Principal (starting amount)
• r = Annual interest rate (as a decimal)
• n = Number of compounding periods per year
• t = Time in years

Step-by-Step Comparison Example

Compare both methods for $20,000 at 5% annual interest over 15 years:

1. Simple interest: I = $20,000 × 0.05 × 15 = $15,000. Total = $35,000.
2. Compound interest (monthly): A = $20,000 × (1 + 0.05/12)^12×15 = $20,000 × (1.004167)¹⁸⁰ = $20,000 × 2.1137 = $42,274.
3. Compound interest earned: $42,274 - $20,000 = $22,274.
4. Compound advantage: $22,274 - $15,000 = $7,274 more with compounding.

Over 15 years, compound interest earns $7,274 more than simple interest on the same principal and rate. This 48% increase in interest earnings comes entirely from the reinvestment of interest, demonstrating why Albert Einstein reportedly called compound interest the eighth wonder of the world.

Practical Interest Calculation Examples

These scenarios demonstrate how interest calculations apply to common financial products and decisions you may encounter.

High-Yield Savings Account

Keisha deposits $15,000 into a high-yield savings account offering 4.75% APY compounded daily. After 3 years: A = $15,000 × (1 + 0.0475/365)^365×3 = $17,293. She earns $2,293 in interest without contributing additional money. If she had used a traditional savings account at 0.45% APY, she would earn only $203 over the same period. The $2,090 difference shows why shopping for the best savings rate matters significantly.

Certificate of Deposit Comparison

Tom is comparing two CD offers for his $25,000 savings: a 2-year CD at 4.8% compounded quarterly, and a 3-year CD at 5.1% compounded monthly. The 2-year CD grows to: $25,000 × (1.012)⁸ = $27,498, earning $2,498. The 3-year CD grows to: $25,000 × (1.00425)³⁶ = $29,124, earning $4,124. While the 3-year CD earns more total interest, Tom must consider whether locking his money for an extra year is worth the additional $1,626 in earnings and whether rates might rise during that time.

Personal Loan with Simple Interest

Nadia borrows $8,000 at 9.5% simple interest for 2 years to fund a professional certification course. Her total interest is $8,000 × 0.095 × 2 = $1,520. Total repayment is $9,520, or approximately $397 per month. If the same loan used compound interest at 9.5% compounded monthly, the total would be $9,643, costing her $123 more. This illustrates why it pays to understand which interest calculation method your lender uses before signing.

Long-Term Investment Comparison

Brandon invests $5,000 at 7% for 30 years and wants to understand the impact of compounding. With simple interest: $5,000 + ($5,000 × 0.07 × 30) = $15,500. With annual compounding: $5,000 × (1.07)³⁰ = $38,061. With monthly compounding: $5,000 × (1.005833)³⁶⁰ = $40,565. The progression from $15,500 (simple) to $38,061 (annual compound) to $40,565 (monthly compound) shows that compounding itself makes the biggest difference, while compounding frequency provides a smaller but meaningful boost.

Interest Calculation Tips and Complete Guide

Master these interest calculation concepts to optimize your savings, reduce borrowing costs, and make confident financial decisions.

Start Early to Maximize Compound Interest

The most powerful factor in compound interest is time. Starting 10 years earlier with the same monthly savings can result in double or even triple the final balance. For example, investing $200 per month at 7% from age 25 to 65 (40 years) produces approximately $528,000. Starting at age 35 (30 years) produces only $244,000. Those first 10 years of contributions ($24,000) generate an additional $260,000 in final value because they have the most time to compound.

Compare APY, Not Just APR

When comparing savings accounts or CDs, always compare APY (Annual Percentage Yield), which accounts for compounding frequency. Two accounts both advertising 5% can have different APYs if they compound at different frequencies. However, most banks now quote APY directly for deposit products, making comparison easier. For loans, compare the total cost of borrowing rather than just the APR to get the most accurate picture of what you will pay.

Understand How Interest Affects Debt

Compound interest works against you on debt. Credit card debt at 22% APR compounded daily can double in about 3.3 years if you make no payments. A $5,000 balance with minimum payments could take over 20 years and cost more than the original balance in interest alone. Prioritize paying off high-interest compound debt before focusing on investments, unless your investment returns consistently exceed your debt interest rate after taxes.

Use Interest Calculations for Informed Negotiation

Knowing how to calculate interest gives you negotiating power. When a car dealer offers 4.9% financing for 60 months on a $30,000 car, you can quickly estimate that the total interest will be approximately $3,960 (simple interest). If your credit union offers 4.2%, the interest would be about $3,360, saving you $600. Being able to make these comparisons on the spot prevents you from accepting unfavorable terms under pressure.

Common Mistakes to Avoid

• Comparing APR to APY directly. These are not the same metric. APR does not account for compounding, so a 5% APR with monthly compounding has an APY of 5.12%. Always compare like with like when evaluating financial products.
• Ignoring the impact of fees on effective interest. Account fees, transaction costs, and expense ratios reduce your effective return. A savings account earning 4.5% APY but charging $12 per month in fees on a $5,000 balance effectively earns only 1.62% after fees.
• Assuming past interest rates will continue. Variable-rate savings accounts and investments can change their rates at any time. A high-yield savings account offering 5% today might offer 3% next year. Use projected rates for planning but be prepared for changes.
• Overlooking inflation. If your investment earns 4% but inflation is 3%, your real (inflation-adjusted) return is only about 1%. Always consider the real rate of return when planning long-term savings and investments.
• Not accounting for taxes on interest income. Interest earned on most savings accounts and CDs is taxable as ordinary income. If you are in the 22% tax bracket and earn $500 in interest, you keep only $390 after taxes. Tax-advantaged accounts like IRAs can shelter interest from taxes.