What is the difference between simple and compound interest?

Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus any accumulated interest. Over time, compound interest grows much faster. For example, £1,000 at 5% simple interest earns £50/year always. At 5% compound interest, it earns £50 in year 1, £52.50 in year 2, £55.13 in year 3, and so on.

How do I calculate simple interest?

Simple interest = Principal × Rate × Time. Where rate is the annual interest rate as a decimal and time is in years. For example, £5,000 at 4% for 3 years = £5,000 × 0.04 × 3 = £600 in interest. Total amount = £5,600.

Interest Calculator

Calculate simple or compound interest and see how your money grows over time

Currency:

Simple Interest

Principal Amount $10,000

$100$1M

Annual Interest Rate 5.0%

0.1%30%

Time Period 10 years

1 yr50 yrs

Compounding Frequency

Monthly Contribution

Optional: add regular monthly deposits

Total Value

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Enter details above to calculate

Principal

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Interest Earned

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Total Value

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Return

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// Growth Over Time

Principal

Interest

Year-by-Year Breakdown

Year	Interest	Total Interest	Balance
📈 Calculate above to see yearly growth

Simple vs Compound Interest

This calculator supports both simple and compound interest. Use the toggle above to switch between modes. Compound interest is the more powerful of the two — your interest earns interest, leading to exponential growth over time.

Simple Interest Formula

Simple interest is calculated only on the original principal. It is commonly used for short-term loans and some savings accounts.

I = P × r × t I = Interest earned P = Principal (starting amount) r = Annual interest rate (as a decimal) t = Time in years Total = P + I

Compound Interest Formula

Compound interest calculates interest on both the principal and the accumulated interest from previous periods. The more frequently interest compounds, the faster your money grows.

A = P × (1 + r/n)^(n×t) A = Final amount P = Principal r = Annual interest rate (as a decimal) n = Compounding frequency per year t = Time in years

The Power of Compounding

Compounding frequency makes a significant difference over long periods. Daily compounding produces slightly more growth than annual compounding at the same rate. Over decades, even a small difference in compounding frequency can result in thousands of pounds, euros or dollars more.

Monthly Contributions

In compound mode, you can add a monthly contribution to simulate regular saving or investing. This dramatically increases your final balance over time and is the basis of most retirement and investment planning.

Simple vs Compound Interest: One Difference, Huge Consequences

Built and verified by Andrius R. · Updated June 2026

Two ways to charge or earn interest, one small definitional difference: simple interest is always calculated on the original amount; compound interest is calculated on the current amount, including previously earned interest. That single distinction separates linear growth from exponential.

Side by side

Worked example — $5,000 at 6% for 10 years

Method	Formula	Result
Simple	5,000 × (1 + 0.06 × 10)	$8,000
Compound (annual)	5,000 × (1.06)¹⁰	$8,954

A $954 gap in 10 years — and it widens forever. At 20 years it's $11,000 vs $16,036; at 30 years, $14,000 vs $28,717. Simple interest adds the same $300 every year; compound interest's annual gain grows every year. Short horizons hide the difference; long horizons are dominated by it.

Which one applies to your money?

Compound: savings accounts, investment growth, credit cards, mortgages and most amortized loans (interest accrues on the outstanding balance), inflation. The default for almost everything that matters.
Simple: many bonds' coupon payments, some short-term personal and auto loans, certain certificates of deposit, late-payment penalty calculations, and most car-title or payday-style lending.

One asymmetry worth savoring: loans charge you compound interest, but a few savings products only pay simple — always check which side of the line a product sits on. A "6% simple" investment is genuinely worse than a "5.5% compounded" one over long periods.

Rate quoting tricks: nominal, APR, APY

The compounding frequency hides inside the quoted rate. A nominal 6% compounded monthly really yields (1 + 0.06/12)¹² − 1 = 6.17% per year — that's the APY/AER (effective annual rate). Banks quote whichever sounds better: APY when paying you, nominal APR when charging you. To compare any two products fairly, convert both to APY. The calculator above does exactly this when you switch compounding frequencies.

Three mental tools

Rule of 72: years to double ≈ 72 ÷ rate. 6% doubles in ~12 years; 9% in ~8. (For simple interest, doubling takes 100 ÷ rate — at 6%, nearly 17 years.)
Per-year sanity check: simple interest = principal × rate × years, always. If a quoted "total interest" exceeds that, compounding is in play.
Direction check: compounding helps when you're owed money and hurts when you owe it — which is why the same person should love it in their pension and fear it on their credit card. For the wealth-building side in depth, see the compound interest calculator and its guide.

Disclaimer: CalculatorXP calculators are for informational purposes only and do not constitute financial or legal advice. Interest calculations are estimates and do not account for taxes, fees or inflation. Always consult a qualified financial advisor.

// Rule of 72

Divide 72 by your interest rate to estimate how many years it takes to double your money. At 6% that's 12 years.

// Start Early

Thanks to compounding, starting 10 years earlier can double your final balance even with the same contributions.

// Frequency

Daily compounding earns slightly more than annual. The difference grows larger over longer time periods.

// Real Returns

Subtract the inflation rate from your interest rate to see your real return. 5% interest with 3% inflation equals roughly 2% real growth.