Interest Calculator

About Interest Calculator

Understanding how interest works is fundamental to personal finance. Whether you are saving money in a bank account or paying off debt, interest determines how much your money grows or how much you owe. This calculator allows you to compare Simple Interest and Compound Interest.

Simple vs. Compound Interest

• Simple Interest: Calculated only on the principal amount. It remains constant over time. Formula: I = P × r × t. This is often used for short-term loans or certain types of bonds.
• Compound Interest: Calculated on the principal plus accumulated interest. This is "interest on interest," which allows your savings to grow exponentially over time. Formula: A = P(1 + r/n)^(nt). This is how most savings accounts and investments work.

The Power of Compounding

Albert Einstein reportedly called compound interest the "eighth wonder of the world." Even small contributions can grow into significant sums over long periods due to the compounding effect. The earlier you start saving, the more time your money has to compound.

Example

If you invest $10,000 at 5% interest for 10 years:

• Simple Interest: You would earn $5,000 in interest. Total: $15,000.
• Compound Interest (Annually): You would earn $6,288.95 in interest. Total: $16,288.95.

That's an extra $1,288.95 just by letting the interest compound!