📈 Finance · Interest

How to Calculate
Interest

Simple vs compound interest explained. Free calculator for savings, loans, and investments with full breakdowns.

Simple vs Compound Interest Formulas

Simple Interest
I = P × r × t
I = interest earned
P = principal
r = annual rate (decimal)
t = time in years
Compound Interest
A = P(1 + r/n)^(nt)
A = final amount
n = compounds/year
t = years
💡 The key difference: Simple interest is calculated only on the principal. Compound interest is calculated on principal PLUS previously earned interest — it snowballs over time.

Interest Calculator

Interest Earned
$2,500
Simple interest
Total Amount
$12,500
Per Year
$500
Interest Earned
$9,671
Compound interest
Final Amount
$19,671
vs Simple
+$671

Step-by-Step: Simple Interest

1

Identify P, r, t

Principal = $5,000. Annual rate = 6% = 0.06. Time = 3 years.

2

Apply the formula

I = P × r × t = 5,000 × 0.06 × 3 = $900 interest

3

Calculate total amount

Total = Principal + Interest = $5,000 + $900 = $5,900

Worked Examples

Car Loan (Simple)

$20,000 at 8%/yr
for 5 years
I = 20,000×0.08×5
$8,000 interest

Savings (Compound)

$5,000 at 4%/yr
10 years, monthly
A = 5,000(1+0.04/12)^120
$7,444 total

Investment (Compound)

$10,000 at 8%/yr
20 years, annually
A = 10,000(1.08)^20
$46,610 total

Rule of 72

How long to double?
72 ÷ rate = years
At 6%: 72÷6
12 years

More Finance Calculators

🏠
Mortgage
Monthly payments
🧾
Income Tax
Tax brackets
💰
Net Worth
Assets minus debts
💵
Net Income
Take-home pay
📊
Profit Margin
Business profits
🏪
Sales Tax
Add tax to price
🧮
VAT
Value added tax
⏰
Overtime Pay
Extra hours pay

Frequently Asked Questions

What's the difference between simple and compound interest? ▾
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus all previously earned interest — making your money grow faster over time.
How often does interest compound? ▾
It depends on the account or loan. Common frequencies: daily (most savings accounts), monthly (most mortgages and credit cards), quarterly, or annually. More frequent compounding = slightly more interest earned/owed.
What is APR vs APY? ▾
APR (Annual Percentage Rate) is the simple annual rate. APY (Annual Percentage Yield) accounts for compounding — it shows the effective annual return. APY is always equal to or higher than APR.
What is the Rule of 72? ▾
A quick mental shortcut: divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 6%, it takes about 72÷6 = 12 years.