Simple & Compound Interest Calculator
Calculate simple and compound interest rates, total amount, and monthly/yearly interest
Simple interest is calculated only on the principal amount, while compound interest is calculated on both principal and accumulated interest. This calculator helps you understand both types of interest calculations.
Interest Calculation Results
Principal Amount
Interest Amount
Total Amount
Effective Annual Rate
| Component | Amount | Percentage |
|---|
Important Notes
- Simple interest is calculated only on the principal amount
- Compound interest includes interest on previously earned interest
- More frequent compounding leads to higher returns
- Consider tax implications on interest earnings
Disclaimer: This calculator provides estimates based on the inputs provided. Actual interest rates and returns may vary based on market conditions and financial institution policies.
Interest Calculation Guide & Tutorial
Understanding Interest
Interest is the cost of borrowing money or the return on investment. Understanding how interest is calculated helps in making informed financial decisions.
Simple Interest
Simple interest is calculated only on the principal amount, making it easier to understand and calculate.
Compound Interest
Compound interest includes interest on previously earned interest, leading to exponential growth.
Types of Interest
| Type | Description | Formula |
|---|---|---|
| Simple Interest | Interest calculated only on principal | SI = P × R × T |
| Compound Interest | Interest on principal + accumulated interest | CI = P(1 + r/n)^(nt) - P |
| Effective Annual Rate | Actual annual interest rate with compounding | EAR = (1 + r/n)^n - 1 |
How to Calculate Interest: Step-by-Step
Determine Principal Amount
Enter the initial amount of money (principal).
Set Interest Rate
Enter the annual interest rate as a percentage.
Choose Time Period
Select the duration in years, months, or days.
Select Interest Type
Choose between simple or compound interest.
Set Compound Frequency
For compound interest, choose how often interest is compounded.
Analyze Results
Review the calculated interest and total amount.
Frequently Asked Questions
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest from previous periods.
Compound frequency refers to how often interest is calculated and added to the principal. Common frequencies include annually, semi-annually, quarterly, monthly, and daily.
The effective annual rate (EAR) is the actual interest rate that accounts for compounding over a year. It helps compare different interest rates with different compounding frequencies.
More frequent compounding leads to higher returns because interest is calculated and added to the principal more often. For example, daily compounding will yield more than annual compounding.
Key factors include:
- Principal amount
- Interest rate
- Time period
- Compound frequency (for compound interest)
- Market conditions