Interest Calculator
Compare Simple vs. Compound Interest yields and total returns over time
How to Use This Calculator
- Enter your starting balance in Principal Amount ($).
- Specify your expected annual percentage rate in Annual Interest Rate (%).
- Set the total investment duration in Time Horizon (Years).
- Select how often interest compounds (e.g., Monthly, Annually, or Daily).
- Click “Calculate Interest” to review total earned interest and compare compound growth against simple interest.
The Formulas Used
Interest accrues under either simple linear interest or exponential compounding models:
A = P × (1 + r × t)
Compound Interest:
A = P × (1 + r / n)^(n × t)
Where: P = Principal, r = Annual Rate (decimal), t = Years, n = Compounding periods per year.
Frequently Asked Questions (FAQ)
What is the key difference between simple and compound interest?
Simple interest is calculated only on the initial principal sum, whereas compound interest is calculated on the principal plus all previously accumulated interest, accelerating overall growth over time.
How does compounding frequency impact returns?
Higher compounding frequencies (e.g., daily or monthly vs. annually) result in faster interest accumulation, generating a slightly higher effective annual yield (APY).
What is APY vs. APR?
APR (Annual Percentage Rate) reflects the base interest rate without factoring in compounding. APY (Annual Percentage Yield) takes compounding frequency into account, showing the true annualized return.
What is the Rule of 72?
The Rule of 72 is a quick mental shortcut to estimate how many years it takes for an investment to double: divide 72 by your annual interest rate (e.g., 72 / 6% = 12 years).