Interest Calculator
Calculate simple and compound interest for savings, investments, or loans.
Visualize the power of compound growth. Compare Simple Interest vs. Compound Interest strategies to maximize your savings.
Investment Details
Final Balance
Result Breakdown
What is Interest Calculator?
Understanding the Interest Calculator
Albert Einstein famously called **compound interest** "the eighth wonder of the world." This calculator demonstrates why. It helps you calculate the future value of a principal amount based on a fixed interest rate and time period. It crucially differentiates between **Simple Interest** (linear growth) and **Compound Interest** (exponential growth).
Who Should Use This?
- Savers: To see how much a High-Yield Savings Account (HYSA) will yield over 5 years.
- Investors: To plan retirement goals by assuming an annual stock market return (e.g., 7-10%).
- Borrowers: To understand the total cost of a simple-interest personal loan versus a compounding debt.
- Students: To learn the math behind financial growth.
Why This Tool is Useful
Small differences in **Compounding Frequency** (how often interest is paid) can have massive long-term effects. A 5% rate compounded daily earns significantly more than 5% compounded annually. This tool lets you toggle these frequencies instantly to see the "free money" discrepancy.
When to Use It
Use this calculator whenever you are evaluating a financial product—whether it's a CD (Certificate of Deposit), a savings account, a bond, or a personal loan offer.
How to Use This Calculator
Using the calculator is intuitive:
- Principal Amount: The starting lump sum you are investing or borrowing. (e.g., $10,000)
- Annual Rate (%): The interest rate. For investments, use the APY (Annual Percentage Yield). For loans, use the APR. (e.g., 5.0%)
- Time (Years): How long you will let the money grow. (e.g., 10, 20, 30 years)
- Compound Frequency:
- Simple: Interest is calculated ONLY on the principal. Common for bonds and some personal loans.
- Annually: Interest is added to the balance once a year.
- Monthly: Interest is added 12 times a year. Common for Savings Accounts and Credit Cards.
The Rule of 72
Want a mental shortcut? Divide 72 by your interest rate to see how many years it takes to DOUBLE your money.
72 ÷ 8% Return = 9 Years to Double
Formula & Calculation
1. Simple Interest Formula
2. Compound Interest Formula
Variable Definitions:
- A = Final Amount (Future Value)
- P = Principal (Initial Deposit)
- r = Annual Interest Rate (converted to decimal, e.g., 0.05)
- t = Time in years
- n = Number of times compounded per year (12 for monthly, 1 for annual)
Example Calculation
Example 1: The High-Yield Savings (Compound)
Scenario: You deposit $10,000 into a HYSA paying 5% APY, compounded monthly, and leave it for 10 years.
r = 0.05, t = 10, n = 12
A = 10000(1 + 0.05/12)^(120)
Result: You end up with $16,470. You earned $6,470 in interest without lifting a finger.
Example 2: The "Simple" Loan
Scenario: You lend a friend $10,000 at 5% simple interest for 10 years.
r = 0.05, t = 10
I = P * r * t = 10000 * 0.05 * 10
Result: He pays you back $15,000 ($10k + $5k interest). Notice that you earned $1,470 LESS than the compound interest example above!
Explanation of Results
- Final Balance: The total amount of cash you will have at the end of the term.
- Total Interest Earned: The "profit" generated by your money. In Example 1, over 60% of your initial investment was generated purely by interest!
Reference Tables
The Power of Frequency ($10,000 at 8% for 20 Years)
See how the compounding schedule affects your final wealth.
| Compounding | Final Balance | Interest Earned | Impact |
|---|---|---|---|
| Simple (None) | $26,000 | $16,000 | Base |
| Annually | $46,609 | $36,609 | +128% vs Simple |
| Quarterly | $48,754 | $38,754 | +142% vs Simple |
| Monthly | $49,268 | $39,268 | +145% vs Simple |
| Daily | $49,521 | $39,521 | +147% vs Simple |
Why use this calculator?
- Motivation: Seeing how $1,000 can turn into $10,000 is powerful motivation to start saving today.
- Comparison: Accurately compare financial products (e.g., is a 4.5% daily account better than a 4.6% annual one?).
- Education: Teach students or children the value of money and patience.
Frequently Asked Questions
Frequently Asked Questions
What is APY vs APR?
APY (Annual Percentage Yield) includes the effect of compounding interest (what you earn). APR (Annual Percentage Rate) is the simple interest rate (what you usually pay on loans) without compounding.
How do I combat inflation?
Inflation eats away your purchasing power (avg 2-3% per year). To grow wealth, your investment return must be HIGHER than the inflation rate. Simple savings accounts often fail this test; investing usually passes it.
When did interest start?
Interest dates back to Ancient Mesopotamia (2000 BC)! The Sumerian word for interest, mas, meant "calf." If you lent someone a herd of cows, it was expected they would reproduce, so you should get back more cows than you lent. This natural growth was the first "interest."
What is the "Eighth Wonder of the World"?
This quote is attributed to Albert Einstein regarding Compound Interest: "He who understands it, earns it; he who doesn't, pays it." It highlights how exponential growth can build massive wealth over long periods.
Key Terms & Definitions
Disclaimer: This calculator provides hypothetical examples for educational purposes. Actual investment returns vary and are not guaranteed. Past performance does not predict future results.
Last Updated: January 2026