What Is This Interest Calculator?
This calculator computes interest either the simple way (calculated only on the original principal) or the compound way (calculated on principal plus previously earned interest) — letting you compare both directly.
How to Use the Interest Calculator
- Choose simple or compound interest.
- Enter your principal, annual rate, and time period.
- For compound interest, choose the compounding frequency.
Interest Formulas
Worked Example
Simple interest: $10,000 × 0.05 × 5 = $2,500
Compound interest (monthly): $10,000 × (1+0.05/12)^60 − $10,000 ≈ $2,833
Understanding Your Results
Compound interest generally produces more total interest than simple interest over the same period, since it earns "interest on interest." The gap grows larger with longer time periods and more frequent compounding.
Common Mistakes to Avoid
- Assuming simple and compound interest give the same result — they diverge more the longer the time period.
- Forgetting that most everyday financial products (savings, credit cards) use compound interest, not simple.
Frequently Asked Questions
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus previously earned interest, so it grows faster over time.
Most savings accounts, loans, and credit cards use compound interest, though some simpler short-term loans may use simple interest.
More frequent compounding (daily vs. annually) produces slightly higher interest at the same nominal rate, though the difference is usually modest compared to the impact of rate and time.
For simple interest, multiply principal by rate by time. For compound interest, calculate the final amount using the compound interest formula, then subtract the original principal.
Yes — the gap between simple and compound interest grows larger the longer the money is invested or borrowed, due to the compounding effect accelerating over time.