What's the difference between simple and compound interest?

With simple interest, interest is calculated only on the original principal each period and is never added to it. With compound interest, earned interest is added back to the principal at the end of each period and starts earning interest itself. Example: with a 10,000 principal at a 10% annual rate over 3 years, simple interest earns a flat 1,000 each year (3,000 total, final amount 13,000). Compound interest (compounded annually) grows the principal to 11,000 after year 1, then earns interest on that 11,000 in year 2 (reaching 12,100), and reaches 13,310 by the end of year 3 — 310 more than simple interest at the same rate and term.

How is simple interest calculated?

Simple interest is the principal multiplied by the annual rate and the term in years: Interest = Principal × Rate × Term. Example: a 10,000 principal at a 10% annual rate over 2 years gives Interest = 10,000 × 0.10 × 2 = 2,000; the final amount is Principal + Interest = 10,000 + 2,000 = 12,000. The interest earned each year is constant (1,000 in this example) because it's always calculated on the same original principal.

How is compound interest calculated?

The final amount is A = Principal × (1 + Rate/n)^(n×Term), where n is how many times per year interest compounds (annually=1, quarterly=4, monthly=12, daily=365). Example: a 10,000 principal at a 12% annual rate, compounded monthly (n=12) for 1 year: A = 10,000 × (1 + 0.12/12)^(12×1) = 10,000 × (1.01)^12 ≈ 11,268.25, so total interest is about 1,268.25. The same rate and term compounded annually (n=1) instead gives A = 10,000 × 1.12 = 11,200 — the more frequently interest compounds, the higher the return.

Can I calculate both simple and compound interest on this page?

Yes — use the 'Simple Interest' and 'Compound Interest' tabs at the top of the page to switch methods and compare results using the same principal, rate, and term (e.g. entering 10,000, 10%, 3 years shows 13,000 under simple interest versus 13,310 under compound interest).

What happens if I enter the term in months?

If you select 'Months' as the term unit, the number of months you enter is automatically converted to years before calculating: Years = Months / 12. Example: entering 18 months converts to 18/12 = 1.5 years, so the term used in the formulas is 1.5 — e.g. simple interest becomes Interest = Principal × Rate × 1.5.

Tools/💰 Finance/Interest Calculator – Simple and Compound Interest

Interest Calculator – Simple and Compound Interest

Calculate simple interest and compound interest on one page; see total interest and the final amount based on principal, rate, and term.

Version 1.0 · Last Updated: August 4, 2026 · Maintained by ToolLarder

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Interest Calculator – Simple and Compound Interest

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