Simple vs Compound Interest Calculator
Compare simple and compound interest side by side.
Results update as you type.
How it works
The figures shown here compare how much interest the same deposit earns under simple interest versus compound interest, along with the extra that compounding adds. It matters because the two methods diverge dramatically over time: simple interest pays only on your original principal, while compound interest pays on the principal plus all the interest already earned, so the gap widens every year. This simple vs compound interest calculator applies both formulas to identical inputs — the same principal, rate and term — so you can see the difference cleanly rather than guessing. Simple interest grows in a straight line, adding the same amount each year, whereas compound interest curves upward as returns start earning returns of their own. Savers and borrowers use this comparison to understand why long-horizon investments favor compounding, why high-rate debt that compounds is so costly, and how the choice of method changes the outcome. The comparison also makes the time factor vivid: over short periods the two are close, but over decades compounding can earn several times more. Treat the result as a clean, pre-tax illustration of the mechanism, and remember that most real savings accounts and loans compound, so the compound figure is usually the one that reflects reality.
Simple = P × r × t · Compound = P × [(1 + r)^t − 1], r = rate ÷ 100
P is the principal, r is the annual rate written as a decimal, and t is the number of years. Simple interest is P × r × t, adding the same flat amount each year because it is always charged on the original principal alone. Compound interest is P × [(1 + r)^t − 1]: the term (1 + r)^t grows the balance by the rate every year on the whole running total, and subtracting one strips out the principal to leave just the interest. The difference between the two is what compounding earns beyond a straight line, and the exponent is why that gap accelerates over time.
Source:U.S. SEC — Investor.gov
We review all our tools from time to time to ensure accuracy.
Worked example
How to use this calculator
- 1
Enter your values
Enter principal, annual interest rate and years.
- 2
Adjust the options
Fine-tune any options to match your situation.
- 3
Read your result
Simple interest updates instantly as you type — no button to press.
Frequently asked questions
What is the core difference between simple and compound interest?
Simple interest is calculated only on your original principal, so it adds the same fixed amount every period and grows in a straight line. Compound interest is calculated on the principal plus all previously earned interest, so each period's interest is slightly larger than the last. That reinvestment of earned interest is what makes compound growth curve upward and pull steadily ahead of simple interest the longer the money is invested.
When does compounding make the biggest difference?
The gap between compound and simple interest grows with both the interest rate and the length of time invested. Over one or two years at a low rate the two are nearly identical, but over decades or at high rates compounding can earn several times more. Time is the more powerful lever, which is why starting to save early matters so much: the extra years let interest build on interest for far longer.
Which method do banks and loans actually use?
Most everyday savings accounts, credit cards and loans use compound interest, typically compounded daily or monthly, so the compound figure usually reflects reality. Simple interest appears in some specific products, such as certain auto loans, car title loans and short-term personal loans, where interest is charged only on the principal. Always check the terms of a specific account or loan, since the method materially changes what you earn or owe.
Does a higher rate or more time matter more?
Both increase compound growth, but time has an outsized effect because the exponent in the compound formula rewards additional years more than proportionally. A modest rate compounded over many decades often beats a higher rate over a short period. This is the mathematical reason financial planners stress starting early and staying invested, rather than chasing the highest possible return over a brief window and then stopping.
Is this calculation before or after tax and inflation?
The figures shown are nominal and pre-tax, illustrating the raw mechanics of each interest method without adjusting for taxes or rising prices. In reality, interest earned may be taxable, and inflation erodes the real purchasing power of the future amount. Use the comparison to understand the mechanism, then subtract an estimate for tax and inflation if you need to judge what the money will genuinely be worth later.