How to Use the Simple vs Compound Interest Calculator
Simple interest (SI) grows at a fixed rate on the original principal only. Compound interest (CI) grows on both the principal and accumulated interest, so the gap widens significantly over long periods.
- Simple Interest: I = P Γ r Γ t
- Compound Interest: A = P Γ (1 + r/n)^(nΓt)
Example: $10,000 at 5% for 10 years β Simple interest: $5,000 earned / Compound (annual): ~$6,289 earned. Compound earns $1,289 more.
Frequently Asked Questions
Is monthly compounding always better than annual?
Yes, for the same annual rate, more frequent compounding always yields a higher final balance because interest is reinvested sooner.
Are savings accounts simple or compound?
Most savings accounts use compound interest, often compounded monthly or daily. Fixed-term deposits vary β check the product terms.
Can I enter a fractional year?
Yes. For 1.5 years, enter 1.5 in the term field.