Interest Calculator £ Simple vs Compound
Calculate simple or compound interest on any amount. Compare both methods side-by-side with a year-by-year table to see the real power of compounding.
Simple Interest vs. Compound Interest: The Core Difference
Simple interest is calculated on principal only — you earn a fixed amount each period. Compound interest builds on itself: you earn interest on your interest, causing exponential growth. This distinction is the most important concept in personal finance.
Simple Interest example: $10,000 at 6% per year. Year 1: earn $600. Year 2: earn $600. Year 3: earn $600. Total after 3 years: $11,800.
Compound Interest example (same rate and period): $10,000 at 6% compounded annually. Year 1: earn $600 → $10,600. Year 2: earn $636 → $11,236. Year 3: earn $674 → $11,910. Total after 3 years: $11,910 — $110 more from compounding.
Over longer periods, the gap is enormous. At 6% for 40 years: simple interest = $24,000 total interest ($34,000 total). Compound interest = $92,857 total interest ($102,857 total) — nearly 4× more. This is why Einstein allegedly called compound interest the "eighth wonder of the world."
When Simple vs. Compound Interest Applies
Simple interest is used for: Most auto loans (interest on remaining principal balance each month), some personal loans, US Treasury bills and bonds (interest paid separately, doesn't compound), payday loans (simple daily rate, though annualized APR is astronomical), and short-term business loans.
Compound interest works for and against you: In your favor — savings accounts, CDs, money market accounts, investment accounts, 401(k) and IRA growth. Against you — credit card debt (daily compounding of unpaid balance), student loans (interest often capitalizes/compounds when deferred), home equity lines of credit, and some adjustable-rate mortgages.
The frequency of compounding matters: daily compounding produces slightly more interest than monthly, which produces more than annual. For a 6% rate on $10,000 for 10 years: annual compounding = $17,908; monthly = $18,194; daily = $18,221. The difference between monthly and daily is small; the difference between annual and monthly is more significant for higher rates or longer periods.
Frequently Asked Questions
What is the Rule of 72?
The Rule of 72 is a quick mental math shortcut: divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 6% → 72 ÷ 6 = 12 years to double. At 9% → 8 years. At 3% → 24 years. At 1% → 72 years. The rule works because of how compound growth curves behave. It's accurate within ±1 year for rates between 2% and 15%. A related rule: divide 72 by the inflation rate to find how quickly purchasing power halves. At 3% inflation → purchasing power halves in 24 years.
How is credit card interest calculated?
Credit card interest uses the Daily Periodic Rate (DPR): DPR = APR ÷ 365. Your daily interest = DPR × balance. Interest is compounded daily, meaning each day's accrued interest is added to your balance and earns interest the next day. On a $5,000 balance at 24% APR: DPR = 0.0658%. Daily interest = $3.29. Monthly interest ≈ $99. If you pay only the minimum (~$100/month), nearly your entire payment goes to interest — you barely reduce principal. This is why high-interest debt is so destructive.
How much can I earn in interest on $100,000?
At today's (2026) rates: A high-yield savings account at 5% APY earns $5,000/year. A 2-year CD at 5.2% APY earns $5,200/year (guaranteed). A 10-year Treasury at 4.5% earns $4,500/year (fixed, risk-free). A balanced index fund portfolio at 6–7% expected real return earns $6,000–7,000/year on average (not guaranteed, subject to market volatility). After 10 years of compounding at 5% (HYSA rate): $100,000 grows to $162,889. At 7% (equity return): $196,715. At 10% (S&P 500 historical nominal): $259,374.
