What is the difference between simple and compound interest?
Simple interest is based only on the principal amount of a loan or deposit. Compound interest is based on the principal amount and the interest that accumulates on it in every period.
Calculator
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Analysis
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How to Use
Step-by-step instructions
- 1Enter your initial principal amount.
- 2Input the annual interest rate.
- 3Specify the time period in years.
- 4Select whether the interest is simple or compound.
- 5If compound, select the compounding frequency.
Compound Interest
P is principal amount, r is annual interest rate, t is time in years, n is number of times interest is compounded per year.
A = P(1 + r/n)^(nt)Variables:
ATotal amount (Principal + Interest)PPrincipal amountrAnnual interest rate (decimal)tTime in yearsnCompounding frequency per yearExample
Compound Interest Example
Inputs:
Principal:$10,000
Rate:5%
Time:10 Years
Compounding:Monthly
Steps:
- 1.A = 10000(1 + 0.05/12)^(12×10)
- 2.A = 10000(1 + 0.004167)^120
- 3.A = 10000(1.647)
- 4.A = $16,470
Result:
$16,470.09 Total Amount ($6,470.09 Interest)
Frequently Asked Questions
How does compounding frequency affect my growth?
More frequent compounding (e.g., daily instead of annually) results in slightly higher total interest because you earn interest on your interest more often.