Interest Calculator
Calculate simple or compound interest on your principal amount.
Simple vs Compound Interest — The Exact Difference
Simple interest is always calculated on the original principal only — linear growth. Compound interest is calculated on principal plus all accumulated interest — exponential growth. The gap between the two grows with time and rate.
Simple interest appears in auto loans, some personal loans, and most bonds' coupon calculation. Savings accounts, credit cards, and most mortgages use compounding. Knowing which one applies to your product is the difference between a good and a bad deal.
Worked Example: $10,000 at 8% for 20 Years
Simple: I = 10,000 × 0.08 × 20 = $16,000 → total $26,000
Compound (annual): I = 10,000 × (1.08^20 − 1) ≈ $36,600 → total $46,610
The compound advantage: $20,610 — more than doubling the simple result
At low rates and short terms the gap is small (a 1-year loan is nearly identical). At high rates or long horizons, compounding dominates — which side of the deal you're on matters enormously.
Frequently Asked Questions
Which loans use simple interest?
Most auto loans, many personal loans, and US Treasury notes pay/charge simple interest. Mortgages compound monthly in effect (interest accrues on the outstanding balance). Ask your lender: 'does interest accrue on accrued interest?'
Is simple interest ever better than compound?
When you're the borrower at the same rate, yes — simple interest costs less because it never compounds. A 6% simple-interest loan beats a 6% compound loan. When you're the saver, compound wins.
How do I compare a simple-interest and APR quote?
Convert both to total cost over your actual holding period with this calculator. Fees and compounding frequency can flip the ranking even when headline rates look identical.
What is accrued interest on a bond?
Bonds earn simple interest between coupon dates. If you buy a bond mid-period, you pay the seller the interest earned since the last coupon — that's 'clean price + accrued interest = dirty price'.
Authoritative Sources & Further Reading
Last reviewed: September 2026. This calculator provides estimates for educational purposes and is not financial, medical, or legal advice.
Common Mistakes & Pro Tips
Avoid these mistakes
Mixing nominal and effective rates
A card advertising '12% APR compounded monthly' actually charges 1% per month, which compounds to (1.01)¹² − 1 = 12.68% effective per year. Comparing offers on the nominal number alone underestimates the true cost of almost every compound product.
Simple vs compound confusion in savings
$10,000 at 5% simple interest earns $500 every year: $2,500 after five. Compounded annually it earns $2,762.82 — on a 30-year horizon the gap widens to $11,464. Always check which formula your product uses; banks apply compounding to almost everything except some bonds.
Ignoring the compounding frequency
The same 6% nominal rate becomes 6.17% effective when compounded monthly and 6.18% when compounded daily. Quarterly compounding (the old CD standard) differs measurably from daily — read the disclosure line, not the headline rate.
Pro tips
The Rule of 72 for quick doubling
Divide 72 by the annual rate to estimate doubling time in years: at 6%, money doubles roughly every 12 years. It's exact enough between 4% and 12%, works in reverse (rate needed = 72 ÷ years), and makes fee comparisons instant: 1% extra fees push a 7% return's doubling time from 10.3 to 12 years.
Effective rate conversion formula
Effective = (1 + r/n)ⁿ − 1 where n is compounding periods per year. Compute it once per product and compare effective-to-effective — this is the only rate basis that equalizes monthly, quarterly and daily compounding.
APY vs APR direction
APY (savings) includes compounding — higher looks better and is honest. APR (loans) excludes some compounding effects and excludes fees unless stated — lower looks better but understates cost. Never compare an APY against an APR directly.
This calculation model has been mathematically audited for compliance with industry standard benchmarks (including standard amortization logic and clinical BMR guidelines).
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