Interest Calculator
Calculate both simple and compound interest side by side. See the formulas, compare results, and understand exactly how compounding accelerates your growth.
Quick Answer
On a $10,000 deposit at 6% for 10 years, simple interest earns $6,000 while compound interest (monthly) earns $8,167 — a 36% advantage. The difference grows dramatically with higher rates and longer time periods. Compound interest earns interest on interest, which is why it outperforms simple interest in every scenario.
Results Comparison
Simple Interest
Interest on principal only
- Principal
- $10,000
- Interest Earned
- $6,000.00
Formula
I = P × r × t
I = P x r x t = $10,000 x 0.0600 x 10 = $6,000
Compound Interest
+$2,194 moreInterest on principal + accumulated interest
- Principal
- $10,000
- Interest Earned
- $8,193.97
- Effective Annual Rate
- 6.17%
Formula
A = P(1 + r/n)nt
A = P(1 + r/n)^(nt) = $10,000(1 + 0.0600/12)^(12 x 10) = $18,194
Compounding Advantage
Compound interest earns $2,193.97 more than simple interest — that is 36.6% more interest over 10 years. This extra return comes entirely from earning interest on your previously earned interest.
Year-by-Year Comparison
| Year | Simple Interest | Compound Interest | Difference |
|---|---|---|---|
| 1 | $10,600.00 | $10,616.78 | +$16.78 |
| 2 | $11,200.00 | $11,271.60 | +$71.60 |
| 3 | $11,800.00 | $11,966.81 | +$166.81 |
| 4 | $12,400.00 | $12,704.89 | +$304.89 |
| 5 | $13,000.00 | $13,488.50 | +$488.50 |
| 6 | $13,600.00 | $14,320.44 | +$720.44 |
| 7 | $14,200.00 | $15,203.70 | +$1,003.70 |
| 8 | $14,800.00 | $16,141.43 | +$1,341.43 |
| 9 | $15,400.00 | $17,136.99 | +$1,736.99 |
| 10 | $16,000.00 | $18,193.97 | +$2,193.97 |
About This Tool
The Interest Calculator lets you compare simple and compound interest side by side. Whether you are evaluating a savings account, a bond, or just learning how interest works, this tool shows you the exact formulas, year-by-year growth, and the real dollar difference between the two methods.
Simple Interest: The Basics
Simple interest is calculated only on the original principal. The formula is straightforward: I = P × r × t, where P is the principal, r is the annual rate, and t is time in years. Simple interest is commonly used for short-term loans, auto loans, and some bonds. The interest amount stays the same each year because it is always calculated on the original amount.
Compound Interest: The Growth Engine
Compound interest is calculated on the principal plus all previously accumulated interest. The formula is A = P(1 + r/n)nt, where n is the compounding frequency per year. This creates exponential growth because each compounding period adds interest to a larger balance. Savings accounts, CDs, and most investments use compound interest.
How Compounding Frequency Affects Returns
At 6% annual interest on $10,000, annual compounding yields $17,908 after 10 years. Monthly compounding yields $18,194. Daily compounding yields $18,221. The more frequently interest compounds, the more you earn — though the difference between monthly and daily compounding is relatively small. The biggest jump comes from moving from annual to monthly compounding.
Effective Annual Rate (EAR)
The effective annual rate tells you the true annual return after accounting for compounding. A 6% rate compounded monthly has an EAR of 6.17%. This metric lets you compare products with different compounding frequencies on an apples-to-apples basis. For a deeper dive, read our guide on Compound vs Simple Interest.
Frequently Asked Questions
What is the difference between simple and compound interest?
Which is better for savings: simple or compound interest?
What does compounding frequency mean?
What is the effective annual rate (EAR)?
When is simple interest used in real life?
Was this tool helpful?