Interest Calculator
Calculate simple interest or compound interest for loans and investments.
Interest Calculation Parameters
Interest Formulas
Understanding the difference between simple and compound interest is crucial for financial planning.
Simple Interest
Compound Interest (Future Value)
Where:
- P = Principal Amount
- r = Annual Interest Rate (as a decimal)
- t = Time in Years
- A = Future Value (for compound interest)
- n = Number of times interest is compounded per year (for compound interest)
Simple vs. Compound Interest (Example: $1,000 at 5% for 5 years)
| Year | Simple Interest Value | Compound Interest Value (Annually) |
|---|---|---|
| 1 | $1,050.00 | $1,050.00 |
| 2 | $1,100.00 | $1,102.50 |
| 3 | $1,150.00 | $1,157.63 |
| 4 | $1,200.00 | $1,215.51 |
| 5 | $1,250.00 | $1,276.28 |
Frequently Asked Questions
What is interest?
Interest is the cost of borrowing money or the reward for lending money. It is typically expressed as a percentage of the principal amount.
What is simple interest?
Simple interest is calculated only on the principal amount of a loan or deposit. It does not compound, meaning interest is not earned on previously accumulated interest. Formula: Simple Interest = P \u00d7 r \u00d7 t.
What is compound interest?
Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. It's often called "interest on interest" and can significantly boost investment growth over time. Formula: A = P(1 + r/n)^(nt).