Interest Calculator
Calculate simple or compound interest on any principal, rate, and time period.
Year-by-Year Breakdown
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Simple vs Compound Interest
Simple Interest
Interest is calculated only on the original principal. Formula: I = P × r × t. The interest earned each year is identical, making it easy to predict but less powerful for long-term growth.
Compound Interest
Interest is calculated on both the principal and accumulated interest — "interest on interest." This creates exponential growth. The more frequently compounding occurs, the greater the effect. The compound interest calculator models growth with regular contributions.
Effective Annual Rate (EAR)
The EAR shows the true annual return when accounting for compounding frequency. A 5% rate compounded monthly gives an EAR of ~5.12%. More frequent compounding = higher EAR.
The Rule of 72
Divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 6% interest, 72 ÷ 6 = 12 years. This rule works best for rates between 6–10%.
Worked example
£15,000 at 4.2% annual interest, compounded monthly, for 5 years: A = 15,000 × (1 + 0.042/12)^60 = £18,497. Total interest earned is £3,497. With simple interest the same inputs would yield only 15,000 × 0.042 × 5 = £3,150 — compound interest earns £347 more.
Related calculations
Interest charged on a revolving balance behaves differently — the credit card payoff calculator shows how long a card takes to clear and what the minimum payment really costs. For growth on savings instead, use the savings calculator.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal — the same amount accrues each period. Compound interest is calculated on the principal plus accumulated interest, producing exponential growth. For savings, compound interest is more powerful; for loans, it increases total cost.
How is compound interest calculated?
The formula is A = P × (1 + r/n)^(nt), where P is the principal, r is the annual rate (decimal), n is compounding periods per year, and t is time in years. For example, £1,000 at 5% compounded monthly for 3 years gives approximately £1,161.62. To model an investment with regular contributions, try the investment calculator.
What is the effective annual rate (EAR)?
The EAR shows the true annual return after accounting for compounding frequency. A 5% nominal rate compounded monthly has an EAR of approximately 5.12%. EAR allows fair comparison of accounts or loans with different compounding schedules.
What is the Rule of 72?
Divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 6% interest, 72 ÷ 6 = 12 years. The rule is most accurate for rates between 6–10% and works best as a quick estimate rather than a precise calculation.
Evidence & Methodology
How This Page Is Grounded
Method
Calculates simple interest as principal × rate × time or compound interest using the selected compounding interval.
Important limitation: Uses a constant rate and excludes tax, fees, inflation and changing balances unless contributions are entered.
Primary Sources
- Compound interest Investor.gov — U.S. Securities and Exchange Commission
Quality Checks
Simple, compound, zero-rate and one-period examples are checked independently.
See how sources are selected and corrections are handled in our Editorial & Calculation Methodology, and which automated checks this page has to pass in How We Test.