Interest Calculator – Estimate Interest Earned or Owed
Compare simple and compound interest on a lump sum over time.
About the Interest Calculator
What is the Interest Calculator?
An interest calculator computes both simple and compound interest so you can see the difference side by side.
Why use this calculator?
Understanding interest is essential for both saving and borrowing. The same rate can produce very different outcomes depending on whether it compounds.
How to use it
- Enter the principal amount.
- Enter the annual interest rate.
- Enter the number of years.
- Compare the simple and compound results directly.
Formula
Simple: I = P·R·T Compound: A = P(1+R)^T
The compound figure here assumes annual compounding.
Frequently Asked Questions
Which formula do banks use?
Most bank savings and loans compound (daily, monthly or quarterly), while some short-term and informal loans use simple interest. Check your agreement.
Why is compounding called "interest on interest"?
Because each period you earn interest on your earlier interest as well as your principal, so growth accelerates over time.
What is compound interest?
Compound interest is interest earned on both your original money and on previously earned interest. Over time it can make savings grow much faster than simple interest.
What is the difference between nominal and effective return?
The nominal return ignores compounding within the year, while the effective (annualised) return accounts for it. The effective figure is usually higher and better reflects real growth.
How does inflation affect my returns?
Inflation erodes purchasing power. The real return is the nominal return minus inflation, so an investment can grow in dollars yet still lose value in what it can buy.
What rate of return should I assume?
A common long-term assumption for a diversified stock portfolio is about 6% to 8% per year after inflation, but returns vary and are never guaranteed.
Does this account for taxes and fees?
Unless stated, the tool shows pre-tax, pre-fee growth. Subtract your fund expense ratio and expected tax rate to estimate what you keep.
How much should I save each month?
A common guideline is 20% of income, but the right number depends on your goals. Work backwards from your target amount and time frame.
What is an emergency fund and how big should it be?
It is cash set aside for unexpected expenses. Most planners suggest three to six months of essential living costs.
Where should I keep short-term savings?
High-yield savings accounts and money-market funds are typical because they are liquid and low risk, even if returns are modest.