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How Simple and Compound Interest Are Calculated

Simple interest only ever applies to the original principal: A = P × (1 + r × t), where P is the principal, r the annual rate as a decimal, and t the time in years. Whatever you earn each year is a fixed sum, because the base it is calculated on never changes.

Compound interest works differently: A = P × (1 + r/n)^(n×t), where n is how many times per year the interest is added back into the principal (annually, monthly, daily...). Each time interest is credited, it becomes part of the new principal, so the next period's interest is calculated on a larger base. This is why the compounding frequency itself changes the outcome, not just the nominal rate.

The difference is easy to underestimate over short periods but becomes dramatic over long ones. Take 10,000 invested at a 10% annual rate for 20 years: with simple interest you end up with exactly 30,000 (10,000 principal plus 20,000 in interest, since 10% of 10,000 is a fixed 1,000 every year). With annual compounding, the same 10,000 grows to roughly 67,275 — more than double the simple-interest result — because from the second year onward the interest itself starts earning interest. Shortening the compounding period further (monthly or daily instead of yearly) pushes the final figure a little higher still, though that extra effect is much smaller than the gap between simple and compound interest in the first place.

Enter your principal, annual rate and duration, pick simple or compound and, for compound, the compounding frequency; the calculator returns the final amount and the total interest earned instantly, with no data leaving your browser.

What to Know Before You Rely on the Result

This calculator is a mathematical tool, not financial advice, and a few practical limitations are worth keeping in mind:

• The result is gross, before tax. Withholding tax on deposit interest varies by country and term; subtract your local rate to get the net figure.
• The rate is assumed constant. Real savings accounts, bonds and deposits often carry variable rates that change during the term; this tool projects a single fixed rate forward.
• Inflation is not factored in. A nominally large final amount can still lose purchasing power if inflation runs higher than your interest rate over the same period.
• No additional deposits or withdrawals are modeled. The formulas assume a single lump sum left untouched for the whole period.