Interest calculator: simple and compound
Enter an amount, a yearly rate and a length of time. See the interest as simple interest or compounded, and how the methods compare.
How it works
Simple interest is charged on the original amount only:
Interest = P × R × T
Compound interest is added to the balance N times a year, and later interest is charged on it too:
Total = P × (1 + R ÷ N)N × T
P is the amount, R the yearly rate as a decimal (5% is 0.05), T the time in years (18 months is 1.5) and N how often interest is added: 1 for yearly, 4 for quarterly, 12 for monthly, 365 for daily. Results are rounded to the cent.
Example
$1,000 at 5% a year for two years earns $100.00 of simple interest. Compounded yearly it’s $102.50, because the second year’s interest is charged on $1,050. Compounded monthly it’s $104.94, and daily $105.16. Over short periods the methods barely differ; over many years compounding makes a big difference.
Common questions
What’s the difference between simple and compound interest?
Simple interest is charged only on the original amount. Compound interest is also charged on interest that has already built up, so it grows a little faster, and faster still the more often it compounds.
What is the formula for simple interest?
Interest = P × R × T, where P is the amount, R the yearly rate as a decimal and T the time in years. $1,000 at 5% for 2 years is 1,000 × 0.05 × 2 = $100.
What is the formula for compound interest?
Total = P × (1 + R ÷ N)N × T, where N is how many times a year interest is added. The interest is the total minus P.
Which should I use for a loan to a friend?
Simple interest is easier to agree and to check, which is why most informal loans use it. Whatever you choose, write it down. See charging interest to a friend.