What this interest calculator does
The interest calculator shows you the exact dollar difference between simple and compound interest on the same principal, at the same rate, over the same time. Both sides update live as you type, and a green callout at the bottom tells you how much extra compounding earned. It's the fastest way to internalise why compound interest is such a powerful long-term tool.
Simple interest, plainly stated
Simple interest is paid only on the original principal. The formula is:
A = P × (1 + r × t)
where P is principal, r is the annual rate as a decimal, and t is years. A $10,000 principal at 5% for 10 years earns exactly $5,000 in simple interest — $500 each year, every year, end of story.
Compound interest, plainly stated
Compound interest is paid on the principal and all previously earned interest. The formula is:
A = P × (1 + r/n)n × t
where n is the number of compounding periods per year. The same $10,000 at 5% for 10 years, compounded monthly, grows to about $16,470 — $1,470 more than simple interest. The longer the time horizon, the wider the gap: at 30 years it's a $7,300 difference; at 50 years, well over $50,000.
Why compounding frequency matters (a little)
Compounding daily beats monthly beats quarterly beats annually — but with diminishing returns. The math: at 5% over 10 years, $10,000 grows to $16,470 monthly, $16,471 daily, $16,389 annually. The jump from annual to monthly is $80; the jump from monthly to daily is $1. Rate and time matter far more than frequency.
Where you encounter each
- Savings accounts, money market, CDs — compound interest in your favour, usually monthly or daily.
- Credit cards — compound interest against you, usually daily on unpaid balances. The 22% APR that ads talk about effectively becomes about 24.6% APY when daily compounding bites.
- Short-term Treasury bills, some bonds and short auto loans — often quoted with simple interest.
- Mortgages — amortizing loans use a compound-style monthly calculation on the remaining balance, even though the headline rate is presented as a simple annual figure.
Use with the rest of the toolkit
For compound interest with regular monthly contributions, see the compound interest calculator. To project an investment portfolio's growth, use the investment calculator. For a long-term horizon and a withdrawal estimate, head over to the retirement calculator.