Interest Calculator
Calculate simple or compound interest on your savings and investments. Compare compounding frequencies and see year-by-year growth.
Maturity Value
$14,533
after 5 years · Monthly compounding
Interest Earned
$4,533
Principal
$10,000
Effective Annual Rate
7.76%
Doubling Time
~9.6 yrs
Growth Multiple
1.45×
How Interest Calculation Works
Interest is the cost of borrowing money — or the reward for lending it. Whether you're saving in a bank, investing in bonds, or comparing loan offers, understanding how interest accumulates is essential for making smart financial decisions.
Simple Interest Formula
I = P × r × t A = P + I = P(1 + rt) I = Interest earned
P = Principal (initial amount)
r = Annual interest rate (as decimal, e.g., 0.075)
t = Time in years
A = Maturity value (principal + interest)
Compound Interest Formula
A = P(1 + r/n)^(nt) A = Final amount (maturity value)
P = Principal
r = Annual interest rate (decimal)
n = Compounding frequency per year (1, 2, 4, 12, or 365)
t = Time in years
Simple vs Compound: Side-by-Side Example
$10,000 invested at 7.5% for different durations:
| Years | Simple | Compound (Monthly) | Difference |
|---|---|---|---|
| 1 | $10,750 | $10,776 | +$26 |
| 5 | $13,750 | $14,536 | +$786 |
| 10 | $17,500 | $21,120 | +$3,620 |
| 20 | $25,000 | $44,632 | +$19,632 |
| 30 | $32,500 | $94,313 | +$61,813 |
Notice how compound interest accelerates over time. At 30 years, it produces nearly 3× more than simple interest.
The Rule of 72
A quick way to estimate doubling time: divide 72 by the annual rate. At 6% → ~12 years to double. At 8% → ~9 years. At 12% → ~6 years. This rule works best for rates between 4% and 12%.
Tips for Maximizing Interest
- Choose accounts with higher compounding frequency (monthly or daily beats annually)
- Start early — time is the most powerful factor in compound growth
- Reinvest interest rather than withdrawing it
- Compare APY (Annual Percentage Yield) not just APR when shopping rates
- Consider high-yield savings accounts or CDs for guaranteed returns
- Use tax-advantaged accounts to avoid tax drag on interest earnings
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal: I = P × r × t. Compound interest is calculated on the principal plus previously earned interest: A = P(1 + r/n)^(nt). Compound interest grows exponentially because you earn "interest on interest," making it significantly more powerful over long periods.
How does compounding frequency affect returns?
More frequent compounding produces slightly higher returns because interest is calculated on a growing balance more often. For $10,000 at 7.5% over 5 years: annually yields $14,356; monthly yields $14,536; daily yields $14,550. The difference is small for short periods but compounds significantly over decades.
What is the Rule of 72?
The Rule of 72 is a quick mental math formula to estimate how long it takes an investment to double. Divide 72 by the annual interest rate: at 6% it takes ~12 years to double, at 8% it takes ~9 years, and at 12% it takes ~6 years. This approximation works best for rates between 4-12%.
What is the Effective Annual Rate (EAR)?
EAR is the actual annual return accounting for compounding. A 7.5% nominal rate compounded monthly yields an EAR of 7.76%. EAR allows you to compare investments with different compounding frequencies on an equal basis. Formula: EAR = (1 + r/n)^n - 1.
Is interest taxed?
In most countries, interest income is taxable. In the US, interest from savings accounts, CDs, and bonds is taxed as ordinary income. However, interest from municipal bonds is typically tax-exempt at the federal level. Tax-advantaged accounts (IRA, 401k) defer or eliminate tax on interest.
Which is better for savings: simple or compound interest?
Compound interest is always better for savings because you earn interest on previously accumulated interest. Over 30 years, $10,000 at 7% simple interest grows to $31,000; with compound interest (monthly), it grows to $81,165 — more than 2.6× as much. Always choose compound when saving.
How accurate is this calculator?
This calculator uses exact mathematical formulas for both simple and compound interest and is accurate to the cent. Real-world returns may differ due to variable rates, fees, taxes, inflation, and the specific day-count conventions used by financial institutions.