Interest Calculator

Interest calculator at a glance#

An interest calculator works out the interest you earn or owe from a principal, a rate and a time period. Simple interest uses I = P times r times t, where P is the principal, r is the annual rate as a decimal and t is the number of years. Compound interest uses A = P(1 + r/n)^nt, where n is the number of times interest is added per year.

How to calculate interest#

Take $2,000 at a 4% annual rate for 5 years. With simple interest the calculation is 2000 times 0.04 times 5, which gives $400 in interest, for a $2,400 total. Compounded once a year, the balance is 2000 times 1.04⁵, which is $2,433.31, so the interest is $433.31. Compounding adds the extra $33.31 because each year earns interest on the prior years’ interest, not just on the original $2,000.

The two methods match after one period, then compound interest pulls ahead the longer the money sits, because the gap compounds each year.

Enter your principal, rate and term in the calculator above for the exact interest and final balance. Results assume a steady rate, so a variable rate, extra deposits or a different compounding frequency will shift the figure.

Simple vs compound interest#

Simple interest pays only on the original principal. Compound interest pays on the principal plus interest already added, so the balance grows faster the longer it sits. Deposit $5,000 at a 3% annual rate compounded monthly and after one year the balance is about $5,152, using A = P(1 + r/n)^nt. The same deposit under simple interest would earn a flat $150, for $5,150.

The gap is small over one year and widens over time. After 10 years at 5%, $1,000 earns $500 under simple interest but $628.89 compounded annually. For savings you want compounding; for a debt you are repaying, compounding is what makes a balance grow if you leave interest unpaid.

Fixed vs variable rates#

A fixed rate stays the same for the whole term, so payments are predictable. A variable, or floating, rate moves with market conditions, so the interest you earn or owe can rise or fall over time. The calculator assumes a single steady rate, which is exact for fixed accounts and an estimate for variable ones.

On a loan, the term length drives the total interest. A longer term spreads payments out and lowers each one, but interest accrues over more periods, so you pay more in total. A shorter term costs more each month and less overall. Run both in the calculator to see the trade-off in dollars.

Interest calculator questions#

How do I calculate interest?#

For simple interest, multiply principal by rate by time: I = P times r times t. For compound interest, use A = P(1 + r/n)^nt, then subtract the principal. Write the rate as a decimal, so 4% is 0.04.

What is the difference between simple and compound interest?#

Simple interest is figured on the original principal only. Compound interest is figured on the principal plus interest already added, so you earn interest on your interest. The two match after one period, then compound interest pulls ahead.

How does compounding frequency change the result?#

More frequent compounding adds interest sooner, so the balance is slightly higher. Daily compounding beats monthly, which beats annual, at the same nominal rate. The difference is usually small at typical rates.

How does the loan term affect total interest?#

A longer term lowers each payment but raises the total interest, because interest accrues over more periods. A shorter term does the opposite: higher payments, less interest overall.

What is APY?#

Annual percentage yield is the effective yearly rate once compounding is included. It lets you compare savings accounts with different compounding frequencies on equal footing.

Does this work for both savings and loans?#

Yes. The same formulas apply whether the interest is paid to you on a deposit or charged to you on a loan. For savings it grows your balance; on a loan it adds to what you owe.