Calculating Simple vs. Compound Interest
Interest is the cost of borrowing money or the return earned on savings/investments. There are two main ways interest is calculated: simple and compound.
- Simple Interest:** Calculated only on the original principal amount.
- Compound Interest:** Calculated on the initial principal *and* on the accumulated interest from previous periods. This "interest on interest" effect leads to faster growth over time.
How to Use
- Select "Simple Interest" or "Compound Interest".
- Enter the **Principal Amount** (the initial sum of money).
- Enter the **Annual Interest Rate** (as a percentage).
- Enter the **Time Period** (value and select unit: Years, Months, or Days).
- If calculating **Compound Interest**, select how often the interest **Compounds** (e.g., Monthly, Annually).
- Click "Calculate Interest".
The results will show the Total Interest earned or paid and the Final Amount (Principal + Interest).
Formulas
- Simple Interest (I):** I = P × R × T
(Where P=Principal, R=Annual Rate as decimal, T=Time in years) - Simple Total Amount (A):** A = P(1 + RT)
- Compound Total Amount (A):** A = P (1 + r/n)^(nt)
(Where P=Principal, r=Annual Rate as decimal, n=compounding periods per year, t=Time in years) - Compound Interest:** Compound Total Amount - Principal
This calculator helps visualize the difference between simple and compound growth and calculate interest for loans or savings.