Our Interest Calculator helps you estimate how your money grows over time with either simple or compound interest. Whether you are saving for a goal, comparing bank accounts, or planning a loan payoff, understanding interest can help you make smarter financial decisions.
What is an Interest Calculator?
An Interest Calculator is a quick way to project how an initial amount of money (principal) will grow over a set period at a given annual interest rate. Depending on your selection, it can calculate simple interest, which grows linearly, or compound interest, which grows exponentially as interest earns interest on itself.
Simple vs. Compound Interest
- Simple interest: Interest is calculated only on the original principal. It is straightforward and commonly used for short-term loans or simple investment estimates.
- Compound interest: Interest is calculated on the principal plus any accumulated interest. Over time, this results in faster growth, especially with higher compounding frequency and longer time horizons.
How to use the Interest Calculator
- Enter your principal amount (the starting balance).
- Provide the annual interest rate as a percentage (for example, enter 5 for 5%).
- Set the time period using years and optional additional months.
- Choose Calculation type: Simple or Compound interest.
- If using compound interest, select the compounding frequency (annually, monthly, daily, etc.).
- Click Calculate Interest to see the interest earned and the final amount.
Formulas used by the Interest Calculator
Simple Interest Formula
Simple Interest = Principal × Rate × Time. The total amount is Principal + Simple Interest. Here, the rate is the annual rate expressed as a decimal (for example, 5% becomes 0.05), and time is in years.
Compound Interest Formula
When compounding n times per year: Amount = Principal × (1 + Rate / n)^(n × Time). The interest earned is Amount ? Principal. For continuous compounding, Amount = Principal × e^(Rate × Time).
Why compounding frequency matters
The more frequently interest compounds, the faster your money grows. Monthly compounding generally yields more than annual compounding, and daily yields more than monthly. Continuous compounding is the theoretical maximum, using the mathematical constant e to model constant growth.
Example calculation
Suppose you invest $10,000 at 5% annual interest for 3 years. With simple interest, interest earned is 10,000 × 0.05 × 3 = $1,500, and the total is $11,500. With monthly compounding, the amount is 10,000 × (1 + 0.05/12)^(12×3) ? $11,616. This illustrates how compounding can boost returns over the same period and rate.
Tips for accurate results
- Match the time period to your real timeline, including partial years via months for precision.
- Use the compounding frequency that aligns with your account or loan terms.
- For short-term loans with flat fees, simple interest may better approximate costs.
- For long-term savings or investments, compound interest provides a more realistic growth estimate.
- Remember that fees, taxes, and contributions are not included unless you add them separately to your analysis.
Common use cases
- Estimating savings account growth under different compounding schedules.
- Comparing the effect of rate changes on long-term investments.
- Quickly checking the interest portion of a short-term loan using simple interest.
- Evaluating the benefit of leaving funds invested longer to leverage compounding.
Use this Interest Calculator as a guide to understand how rate, time, and compounding interact. With clear inputs and instant results, you can make more informed financial choices and set realistic expectations for your money.