Simple and Compound Interest Calculator
Both kinds side by side, with the effective annual rate that makes two nominal rates comparable.
Amount $10,000.00
Annual rate 6%
Period 10 years
Compounded monthly
Simple interest total $16,000.00
Simple interest earned $6,000.00
Compound total $18,193.97
Compound interest earned $8,193.97
Effective annual rate 6.168%
Compounding gains you $2,193.97
Simple interest is paid on the original $10,000.00 every year. Compound
interest is paid on the balance, so it earns on its own earnings, and
over 10 years that is worth $2,193.97.
The effective annual rate, 6.168%, is the 6% nominal rate after monthly
compounding. It is the figure to compare two offers on, because a lower
nominal rate compounded more often can cost more.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
Simple interest is paid on the original amount. Compound interest is paid on the balance, so it earns on its own earnings. Over a year the difference is small. Over ten it is the whole argument for starting early.
This shows both from the same figures, and the effective annual rate underneath, which is the number that makes two offers comparable when they compound at different frequencies.
How to use
- Put in the amount and the annual rate.
- Put in the number of years.
- Choose how often interest is added. Monthly is the common case for savings and for most consumer debt.
Example
Ten thousand at 6 percent for ten years, compounded monthly:
Simple interest total $16,000.00
Simple interest earned $6,000.00
Compound total $18,193.97
Compound interest earned $8,193.97
Effective annual rate 6.168%
Compounding gains you $2,193.97Two thousand of the eight is interest on interest. The effective annual rate, 6.168 percent, is what 6 percent compounded monthly is actually worth in a year, and it is the figure to compare against a different account offering, say, 6.1 percent compounded annually, which is the worse deal despite the larger headline.
Pitfalls
Nominal rates are not comparable across frequencies. Six percent compounded monthly beats 6.1 percent compounded annually. The effective annual rate is the only fair comparison, and it is why regulators require it to be shown.
Compounding works the same way against you. On a credit card at 22 percent compounded daily, the effective rate is over 24. The arithmetic here applies to debt without modification.
Inflation is not in this. A 6 percent return with 3 percent inflation is about 3 percent in real terms. For long periods that gap matters more than the compounding does.
This assumes nothing is added or taken out. A single amount left alone. Regular contributions change the answer substantially and need a different formula.
Tax is not in this either. Interest is usually taxable, and the rate depends on where you are and what account it is in. Apply your own rate to the earnings.
Compatibility
Arithmetic in the browser: nothing is uploaded, nothing is stored, and the share link carries the figures.
The compound figure uses the standard formula: the amount times one plus the rate over the number of periods, raised to the power of the periods times the years. The effective annual rate is that formula for one year, minus one. Daily compounding uses 365 periods, not 360; banks differ on this and the difference is a few hundredths of a percent.