Simple and compound interest, side by side
Interest is the price of money — what you earn for lending it or pay for borrowing it. There are two ways to measure it. Simple interest applies the rate only to your original principal, so it grows in a straight line. Compound interest applies the rate to your principal plus the interest already accumulated, so it curves upward over time. This page runs both on the same inputs so you can compare them directly. If you are planning long-term investing with regular contributions, our dedicated compound interest calculator projects balances with deposits, fees, and inflation.
Simple vs compound
Simple: I = P × r × t
Compound: A = P × (1 + r/n)n·t
where P = principal, r = annual rate, n = compounds per year, and t = years. Simple interest adds the same amount each period; compound interest adds interest on the interest, so the longer the term, the wider the gap between the two.
What makes this calculator different
- Both methods at once. Most tools make you compute simple and compound interest separately. Here they sit side by side on identical inputs so the comparison is instant.
- The dollar gap. We show the exact difference in total interest and final balance between the two methods — the real cost or benefit of compounding for your numbers.
- Savings or loans. The same math describes interest you earn and interest you pay, so the calculator works whether you are growing a balance or paying one down.
- Clear inputs. Principal, rate, time, and compounding frequency are all you need — no hidden assumptions and no black box.
Frequently asked questions
What is the difference between simple and compound interest?+
Simple interest is calculated only on your original principal, so it grows by the same fixed amount every period. Compound interest is calculated on the principal plus any interest already added, so each period builds on the last. The two start out close, but compound interest pulls ahead as time passes because you begin earning interest on your interest. Over long horizons that gap can become very large.
How is simple interest calculated?+
Simple interest uses the formula I = P × r × t, where P is the principal, r is the annual interest rate as a decimal, and t is the time in years. For example, $10,000 at 5% for 3 years earns 10,000 × 0.05 × 3 = $1,500 in interest. The final balance is just the principal plus that interest. Because the rate always applies to the same principal, the interest added each year never changes.
How is compound interest calculated?+
Compound interest uses the formula A = P(1 + r/n)^(nt), where P is the principal, r is the annual rate, n is the number of times interest compounds per year, and t is the number of years. The total interest earned is simply A minus P. For $10,000 at 5% compounded monthly for 3 years, A ≈ $11,614, for about $1,614 in interest — more than the simple-interest result over the same period. The more periods that pass, the wider that advantage grows.
Does compounding frequency matter (daily vs monthly vs annual)?+
Yes, but with diminishing returns. Compounding more often means interest is added back to the balance sooner, so it starts earning its own interest earlier. Moving from annual to monthly compounding gives a noticeable bump, but moving from daily to continuous compounding is barely perceptible. In practice the interest rate and the length of time matter far more than how frequently it compounds.
Is the interest on my savings or loan simple or compound?+
It depends on the product. Most savings accounts, CDs, mortgages, and credit cards use compound interest, often compounded daily or monthly. Many auto loans, personal loans, and most bonds use simple interest, where interest accrues only on the outstanding principal. Always check your account agreement or loan disclosure, since the method and the compounding frequency determine what you actually earn or owe.
Disclaimer: This calculator is for educational purposes only and is not financial, investment, or tax advice. The actual interest you earn or owe depends on your specific terms — the rate, compounding method, fees, and timing set out in your account agreement or loan disclosure. Check those documents and consider speaking with a qualified professional before making decisions.