Interest Calculator
Calculate simple or compound interest on any principal amount
Interest Earned
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Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus any previously earned interest. Compound interest grows exponentially while simple interest grows linearly.
When is simple interest used?
Simple interest is used for short-term loans, some auto loans, and savings bonds. Most mortgages technically use simple interest daily but compound monthly. Credit cards use compound interest daily.
How do I calculate interest manually?
Simple interest: I = P × r × t (where r is decimal rate and t is years). Compound interest: A = P(1 + r)^t for annual compounding, where A is the total amount including principal.
What is APR vs APY?
APR (Annual Percentage Rate) is the simple interest rate. APY (Annual Percentage Yield) includes compounding and shows the true annual return. A 5% APR compounded monthly equals 5.12% APY. Use APY to compare accounts accurately.
Does more frequent compounding matter?
Yes, but modestly for typical rates. $10,000 at 5% for 1 year: annual compounding = $10,500; monthly = $10,511.62; daily = $10,512.67. The difference grows over longer time periods.
APR vs APY Explained
APR (Annual Percentage Rate) is the nominal rate without compounding. APY (Annual Percentage Yield) includes compounding effects and reflects the true annual return. When comparing savings accounts, always compare APY.
| APR | APY (monthly compounding) |
|---|---|
| 4.00% | 4.07% |
| 5.00% | 5.12% |
| 6.00% | 6.17% |
| 8.00% | 8.30% |
| 10.00% | 10.47% |