Finance & Business
Interest Calculator
Calculate both simple and compound interest to understand how your money grows over time. Enter your principal amount, interest rate, and time period to see detailed results.
Enter values and calculate to see results
Related to Interest Calculator
The Interest Calculator is a powerful financial tool that helps you understand how your money grows over time through both simple and compound interest. It uses standard financial mathematics formulas to calculate interest earnings based on your principal amount, interest rate, time period, and compounding frequency (for compound interest).
Simple Interest Formula
Simple Interest = P × r × t
Where:
P = Principal amount
r = Annual interest rate (as a decimal)
t = Time in years
Final Amount = P + Simple Interest
Compound Interest Formula
Final Amount = P × (1 + r/n)^(n×t)
Where:
P = Principal amount
r = Annual interest rate (as a decimal)
n = Number of times interest is compounded per year
t = Time in years
The calculator automatically adjusts the compounding frequency (n) based on your selection: annually (1), semi-annually (2), quarterly (4), monthly (12), or daily (365). This allows you to see how different compounding frequencies affect your investment growth over time.
The calculator provides comprehensive results to help you understand your investment growth. The results include the final amount, total interest earned, and the effective annual rate, along with a visual graph showing the growth trajectory over time.
Final Amount
This is the total value of your investment at the end of the specified time period, including both the principal and all interest earned. For compound interest, this amount reflects the effect of interest earning interest on itself over time.
Total Interest
This represents the actual amount of interest earned, calculated as the difference between the final amount and the principal. With compound interest, this amount will be higher than simple interest over the same period due to the compounding effect.
Effective Annual Rate
This shows the actual annual rate of return when considering the effects of compounding frequency. For simple interest, this matches the nominal rate, but for compound interest, it will be higher depending on the compounding frequency.
1. What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and the accumulated interest from previous periods. This means compound interest will always result in higher returns over time, as you're earning "interest on interest."
2. How does compounding frequency affect my returns?
The more frequently interest is compounded, the higher your returns will be. For example, monthly compounding will yield more than annual compounding because the interest is calculated and added to your principal 12 times per year instead of just once.
3. Why is the effective annual rate different from my input rate?
The effective annual rate takes into account the impact of compounding frequency on your returns. When interest is compounded more frequently than annually, the effective rate will be higher than the nominal (input) rate because you're earning interest more often.
4. What factors should I consider when choosing between simple and compound interest?
Consider the investment term length, as the difference between simple and compound interest becomes more significant over longer periods. Also, consider whether you'll be reinvesting the interest (compound) or withdrawing it periodically (simple). Most savings accounts and investments use compound interest, while some loans and bonds may use simple interest.
5. What is the scientific source for this calculator?
This calculator implements standard financial mathematics formulas that are widely accepted in the financial industry and academic literature. The simple interest formula (I = P × r × t) and compound interest formula (A = P(1 + r/n)^(nt)) are derived from fundamental mathematical principles and are documented in numerous financial textbooks, including "Principles of Corporate Finance" by Brealey, Myers, and Allen. The implementation follows the standardized compound interest calculations as defined by the International Actuarial Association (IAA) and is consistent with the financial mathematics framework taught in chartered financial analyst (CFA) programs worldwide.