Interest Calculator - Simple & Compound Interest Calculator
Calculate simple and compound interest for investments, savings accounts, and loans. Compare different compounding frequencies and time periods to maximize your investment returns.
Understanding Interest Calculations
Interest calculations help you understand how your money grows over time through investments, savings accounts, or how much you'll pay on loans. Our calculator supports both simple and compound interest with various compounding frequencies.
Simple vs. Compound Interest
Simple Interest: Interest is calculated only on the principal amount. The formula is: Final Amount = Principal × (1 + Rate × Time). Simple interest grows linearly over time.
Compound Interest: Interest is calculated on both the principal and previously earned interest. This creates exponential growth as your interest earns interest, making it the foundation of wealth building.
Compounding Frequency Impact
Annual Compounding: Interest is added once per year. This is the simplest form of compound interest.
Monthly Compounding: Interest is calculated and added 12 times per year. Common for savings accounts and many investment products.
Daily Compounding: Interest is calculated daily, providing maximum compounding benefit. Often used by high-yield savings accounts and money market accounts.
Continuous Compounding: The theoretical maximum compounding frequency, where interest is calculated and added continuously using the mathematical constant e.
Maximizing Your Interest Earnings
Start Early: Time is the most powerful factor in compound interest. Starting to invest or save even a few years earlier can dramatically increase your final amount.
Choose Higher Rates: Shop around for the best interest rates on savings accounts, CDs, and investment products. Even a 1% difference can significantly impact long-term growth.
Frequent Compounding: When comparing investment options with similar rates, choose the one with more frequent compounding to maximize your returns.
Regular Contributions: Consider making regular additional contributions to your principal to accelerate the compounding effect and reach your financial goals faster.
Effective Annual Rate (EAR)
The Effective Annual Rate shows the true annual return when compounding is considered. It's higher than the nominal rate when compounding occurs more than once per year, making it useful for comparing different investment options with varying compounding frequencies.