Interest Calculator - Simple & Compound Interest
Calculate simple and compound interest to see how your savings or investments grow over time. Supports recurring deposits, shows APY, and includes side-by-side comparison charts. Perfect for planning savings accounts, CDs, bonds, or investment returns.
Calculation Summary
Growth Over Time
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Real-World Interest Scenarios
See how interest works in practice with these realistic examples showing actual dollar amounts and outcomes:
Emergency Fund Builder
- Initial Deposit: $1,000
- Monthly Contributions: $250
- Interest Rate: 4.5% APY (high-yield savings)
- Time Period: 3 years
- Final Balance: $10,284
- Interest Earned: $284
Key Insight: You deposited $10,000 total and earned $284 in interest. That's nearly 3% return on your deposits, all while keeping your money accessible in a savings account.
Long-Term CD Investment
- Initial Deposit: $25,000
- Interest Rate: 5.0% APY (5-year CD)
- Compounding: Monthly
- Time Period: 5 years
- Final Balance: $32,084
- Interest Earned: $7,084
Key Insight: Monthly compounding earned you $251 more than simple interest would have. That extra $251 came entirely from earning interest on your interest.
Retirement Savings Acceleration
- Initial Deposit: $10,000
- Monthly Contributions: $500
- Interest Rate: 7% (diversified portfolio)
- Time Period: 30 years
- Final Balance: $622,764
- Total Deposits: $190,000
- Interest Earned: $432,764
Key Insight: You put in $190K over 30 years and ended with $622K. The $432K difference is compound interest—more than double your contributions. Starting early is everything.
College Savings Fund
- Initial Deposit: $5,000
- Monthly Contributions: $200
- Interest Rate: 6% (529 plan average)
- Time Period: 18 years
- Final Balance: $88,685
- Total Deposits: $48,200
- Interest Earned: $40,485
Key Insight: Starting when your child is born and saving $200/month builds nearly $89K for college. The $40K in interest covers almost half of their tuition.
How Interest Works
Interest is money earned on money. When you deposit cash in a savings account, CD, or bond, the financial institution pays you interest for the privilege of holding your money. When you invest in stocks or funds, your returns compound as your gains generate more gains. Understanding the math helps you maximize returns.
Simple Interest Formula
Example: You invest $10,000 at 5% for 5 years. You'll earn $10,000 × 0.05 × 5 = $2,500 in interest. Your final balance is $12,500.
Simple interest is linear—you earn the same amount each year. It's used for some bonds and short-term instruments, but it's rare for savings accounts.
Compound Interest Formula
Where: A = final amount, P = principal, r = annual rate (as decimal), n = compounding frequency per year, t = time in years
Example: $10,000 at 5% compounded monthly for 5 years: $10,000(1 + 0.05/12)^(12×5) = $12,833.59
That's $333.59 more than simple interest—just from earning interest on your interest. The difference gets massive over longer periods.
APY (Annual Percentage Yield)
Example: 5% APR compounded monthly: APY = (1 + 0.05/12)^12 - 1 = 5.12%
This is the real rate you earn. Always compare APYs, not APRs, when shopping for accounts. The same APR with daily compounding beats monthly compounding.
Simple vs. Compound Interest Explained
The key difference: simple interest is calculated only on your principal, while compound interest is calculated on your principal plus all accumulated interest. It's the difference between linear growth and exponential growth.
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Calculation Basis | Principal only | Principal + accumulated interest |
| Growth Pattern | Linear (straight line) | Exponential (curved upward) |
| $10K @ 5% (5 years) | $12,500 | $12,833.59 |
| $10K @ 5% (30 years) | $25,000 | $44,677.44 |
| Common Uses | Some bonds, short-term loans | Savings accounts, CDs, investments |
Notice the 30-year example: compound interest nearly doubles what simple interest would earn. This is why Einstein allegedly called compound interest "the eighth wonder of the world."
Why Compounding Frequency Matters
The more frequently interest compounds, the more you earn. Each compounding period adds interest to your balance, which then earns interest in the next period. Here's what $10,000 at 5% APR grows to over 10 years:
- Annually (1x/year): $16,288.95 → APY: 5.00%
- Semi-Annually (2x/year): $16,386.16 → APY: 5.06%
- Quarterly (4x/year): $16,436.19 → APY: 5.09%
- Monthly (12x/year): $16,470.09 → APY: 5.12%
- Daily (365x/year): $16,486.65 → APY: 5.13%
Daily compounding earns almost $200 more than annual compounding on just $10K over 10 years. On larger amounts or longer periods, the difference becomes substantial. When comparing accounts, always look at APY to see the real return including compounding effects.
The Power of Recurring Deposits
Adding money regularly is where compound interest really shines. Each deposit gets its own compounding timeline. Earlier deposits have more time to compound than later ones, creating accelerating growth.
Example scenario: You start with $10,000 and add $500/month at 5% compounded monthly for 10 years:
- Total deposits: $10,000 + ($500 × 120 months) = $70,000
- Final balance: $90,581.35
- Interest earned: $20,581.35
You deposited $70K and ended with $90K. That $20K in interest is almost 30% return on your deposits. The earlier you start, the more powerful this becomes. A 25-year-old who saves $500/month until 65 ends up with vastly more than someone who starts at 35, even if the 35-year-old saves more per month to "catch up."
Best Practices for Recurring Savings
- Automate it: Set up automatic transfers on payday so you never forget
- Start small: Even $50/month is infinitely better than $0/month
- Increase gradually: Bump up contributions when you get raises
- Don't interrupt: Let it run uninterrupted for maximum compound growth
- Front-load if possible: Deposits made earlier in the year earn more than those at year-end
What Affects Your Interest Earnings?
Understanding how each variable impacts your returns helps you make smarter financial decisions:
Principal Amount
Your starting balance determines the base for all interest calculations. A larger principal means more interest from day one.
Example: At 5% annually, $10,000 earns $500 in year one, while $25,000 earns $1,250—the same rate, but 2.5x the dollars.
Strategy: If you have a lump sum, deposit it immediately rather than spacing it out. Earlier deposits have more time to compound.
Interest Rate
This is the percentage you earn annually. Even small rate differences compound into substantial money over time.
Example: $10,000 over 20 years at 4% grows to $21,911. At 6%, it reaches $32,071—that's $10,160 more for just 2% higher rate.
Strategy: Shop around. Online banks often offer 4-5% APY while traditional banks pay under 0.5%. It's worth the effort to switch.
Time Period
Compound interest gets exponentially more powerful with time. The first 10 years matter less than the last 10 years of a 30-year plan.
Example: $10,000 at 7% grows to $19,672 in 10 years. Hold it 30 years and you get $76,123—nearly 4x more growth in the final 20 years.
Strategy: Start as early as possible and never interrupt your compounding. A 25-year-old saving for 40 years beats a 35-year-old saving twice as much for 30 years.
Compounding Frequency
How often interest gets added to your balance. Daily is best, but the difference is usually modest compared to rate and time.
Example: $10,000 at 5% for 10 years: Annual compounding = $16,289, Daily = $16,487. That's $198 extra for choosing daily.
Strategy: When rates are equal, always choose the account with more frequent compounding. It's free money.
Recurring Contributions
Regular deposits dramatically accelerate wealth building. Each contribution starts its own compounding timeline.
Example: $10,000 at 7% for 30 years = $76,123. Add $500/month and you end with $622,764—8x more by adding consistent deposits.
Strategy: Automate monthly transfers so you never miss a contribution. Even $50/month is infinitely better than $0/month.
Tax Treatment
Where you save matters. Tax-advantaged accounts let you keep more of your interest rather than paying taxes annually.
Example: In a taxable account at 25% tax bracket, a 5% interest rate becomes 3.75% after taxes. That's like losing 1.25% APY every year.
Strategy: Maximize tax-advantaged accounts first (401k, IRA, HSA, 529). Use taxable accounts only after maxing out tax-advantaged options.
Strategies to Maximize Interest
Time is your biggest advantage. Starting 10 years earlier can mean 2-3x more wealth at retirement, even with identical contributions and returns. Every day you wait costs you compounding time.
Why it works: The final decade of a 30-year plan generates more interest than the first two decades combined. Don't lose those crucial years.
The difference between 4% and 5% means thousands over time. Online banks often beat traditional banks on rates because they have lower overhead. Always compare APYs, not APRs.
Why it works: On $25,000 over 20 years, 5% vs 4% means $11,182 more in your pocket. That's worth 10 minutes of research.
When comparing accounts with identical rates, choose the one with more frequent compounding. Daily beats monthly beats quarterly. It's essentially free bonus interest.
Why it works: More frequent compounding means your interest starts earning interest sooner. Over decades, this adds up.
Early withdrawals reset your compounding progress and often trigger penalties. Let your money grow undisturbed for maximum returns. Treat your savings account as untouchable except for true emergencies.
Why it works: Withdrawing $5,000 doesn't just cost you $5,000—it costs you what that $5,000 would have grown to. That could be $20,000+ in 30 years.
If given the option, always reinvest interest payments rather than taking them as cash. This is how compound interest works its magic. Taking interest as cash converts it to simple interest.
Why it works: Each dollar of interest you reinvest starts earning its own interest. That's the "compound" in compound interest.
When you get raises or bonuses, increase your recurring deposits by even $50-100. The additional contributions benefit from all remaining compounding periods, creating accelerating growth.
Why it works: Raising your contribution from $500 to $600 monthly doesn't just add $100/month—it adds $100/month that compounds for decades.
⚠️ Common Interest Calculation Mistakes
Avoid these errors that can cost you thousands in lost returns:
Comparing APR Instead of APY
Using annual percentage rate (APR) instead of annual percentage yield (APY) when shopping for accounts.
Why It Matters: APR doesn't account for compounding. Two accounts with 5% APR can have different APYs (5.12% monthly vs 5.00% annually). You could lose hundreds per year by choosing the lower APY.
What To Do Instead: Always compare APYs. This is the true return you'll earn. Every legitimate financial institution must disclose APY, so insist on seeing it.
Ignoring Fees
Focusing only on interest rate while ignoring monthly fees or minimum balance requirements.
Why It Matters: A $10/month maintenance fee on a $5,000 savings account is effectively -2.4% APY. That completely wipes out a 4% interest rate and then some.
What To Do Instead: Calculate your net return after fees. Seek no-fee accounts. If you can't avoid fees, make sure your balance is large enough that the interest far exceeds the fees.
Forgetting About Inflation
Thinking that earning 3% interest means you're actually getting 3% richer.
Why It Matters: If inflation is 3% and your savings earn 3%, your "real" return is 0%. Your purchasing power stays flat. You need to beat inflation to actually grow wealth.
What To Do Instead: Track your "real" return (interest rate minus inflation rate). In high-inflation periods, consider assets that historically outpace inflation, like diversified investments.
Delaying Because "I'll Start Next Year"
Waiting to start saving until you have a larger lump sum or until your financial situation "improves."
Why It Matters: Delaying 5 years can cost you tens of thousands in lost compound growth. Starting with $100/month today beats waiting to save $500/month later.
What To Do Instead: Start with whatever you can afford right now. Even $25/month. You can always increase it later. The time you lose can never be recovered.
Assuming Simple Interest
Mentally calculating interest as "5% per year means $500 on $10,000" without accounting for compounding.
Why It Matters: This underestimates your returns. At 5% compounded monthly, $10,000 grows to $16,470 in 10 years, not $15,000. You're leaving $1,470 on the table mentally.
What To Do Instead: Use a calculator (like this one!) to see real compound interest projections. Understanding the true growth potential keeps you motivated to save more.
Keeping Everything in Low-Interest Checking
Leaving all your money in a checking account earning 0% when you could be earning 4-5% in a high-yield savings account.
Why It Matters: On $20,000, the difference between 0% and 4.5% is $900 per year in lost interest. Over 10 years, that's $11,166 you gave up for convenience.
What To Do Instead: Keep 1-2 months of expenses in checking for daily use. Move everything else to a high-yield savings account. Most transfers take 1-2 business days, which is fine for non-emergency money.
How to Use This Calculator
- Enter your initial deposit: This is your starting principal—how much you're putting in upfront. For planning purposes, use your current savings or the lump sum you plan to invest.
- Set the annual interest rate: Your APR, typically provided by your bank or investment account. Check your account statement or contact your financial institution. For planning, research current high-yield savings rates (typically 4-5% as of 2025).
- Choose the time period: How many years you plan to save or invest. Use decimals for partial years (0.5 = 6 months, 1.5 = 18 months). Consider your financial goals—emergency fund (1-2 years), down payment (3-5 years), retirement (20-40 years).
- Select interest type: Choose Simple Interest (rare, mainly for short-term bonds or comparison purposes) or Compound Interest (how virtually all savings accounts, CDs, and investments work). Always use compound for real planning.
- Pick compounding frequency: How often interest is added to your balance. Check your account terms—most savings accounts compound daily or monthly. Daily is best, followed by monthly, quarterly, semi-annually, then annually.
- Add recurring deposits (optional): If you're contributing regularly, enter the amount and how often. For salary-based savings, use monthly. For bonus-based savings, use quarterly or annually. This is the most powerful feature for wealth building.
- Calculate your results: Click Calculate to see your final balance, total interest earned, effective APY, and a visual growth chart. The chart shows how your balance grows over time.
- Download PDF (optional): Save your results as a PDF for your records, to compare different scenarios, or to share with a financial advisor. Includes all inputs, calculations, and the growth chart.
💡 Pro Tip: Run multiple scenarios to understand tradeoffs. Try different time periods (5 vs 10 vs 20 years), rates (conservative 4% vs optimistic 7%), and contribution amounts ($100 vs $500 vs $1000/month). This helps you set realistic goals and understand what levers matter most. Small increases in contribution amounts often matter more than chasing slightly higher interest rates.
Sources & Methodology
Our interest calculations follow industry-standard financial formulas used by banks, credit unions, and investment firms:
Federal Reserve
Interest rate data and compound interest standards. We reference Federal Reserve publications for understanding how financial institutions calculate and report interest rates.
View Source →Consumer Financial Protection Bureau (CFPB)
APY calculation requirements and consumer guidance. The CFPB mandates how financial institutions must disclose interest rates to ensure transparency.
View Source →Federal Deposit Insurance Corporation (FDIC)
Savings account regulations and compound interest standards for FDIC-insured institutions. We ensure our calculations match how federally-insured banks compute interest.
View Source →National Credit Union Administration (NCUA)
Credit union interest calculation standards and share account regulations. Our formulas align with NCUA-insured credit union practices.
View Source →Learn More About Interest
- SEC: Save and Invest - Educational resources about savings and compound interest
- TreasuryDirect.gov - Information about U.S. Treasury bonds and savings bonds
- Bankrate - Current savings account and CD rates for comparison
- NerdWallet - Reviews of high-yield savings accounts
Common Questions
Simple interest is calculated only on the principal amount using the formula I = P × r × t. Compound interest is calculated on both the principal and accumulated interest, using A = P(1 + r/n)^(nt). Compound interest grows exponentially and earns significantly more over time because you earn "interest on your interest." For example, $10,000 at 5% for 30 years becomes $25,000 with simple interest but $44,677 with compound interest.
Daily compounding provides the best returns, followed by monthly, quarterly, semi-annually, and annually. The difference between daily and monthly is usually small, but daily compounds 365 times per year versus 12 times for monthly. Over long periods, this adds up. On $10,000 at 5% for 10 years, daily compounding earns about $197 more than annual compounding. When comparing savings accounts or CDs, always look at the APY, which reflects the true return including compounding frequency.
APY (Annual Percentage Yield) is the real rate of return earned on an investment, taking into account compound interest. APR (Annual Percentage Rate) is the simple interest rate without compounding. APY is always equal to or higher than APR. For example, 5% APR compounded monthly equals about 5.12% APY. When comparing savings accounts, CDs, or bonds, always use APY for accurate comparison—it tells you what you'll actually earn. This calculator automatically shows your APY based on your chosen compounding frequency.
Yes! This calculator supports recurring deposits, letting you add regular contributions (monthly, quarterly, or yearly) to see how consistent savings plus compound interest can accelerate your wealth building. Enter the amount you plan to deposit each period and how often. The calculator treats each deposit separately, giving it its own compounding timeline. This is perfect for calculating returns on automatic savings transfers, 401(k) contributions, or any regular investment plan. Even small regular deposits can lead to substantial growth over time thanks to compound interest.
Absolutely! Just enter decimal values for the time period. For example, 6 months = 0.5 years, 3 months = 0.25 years, 18 months = 1.5 years. The calculator accurately computes interest for any time period, whether it's 1 day (0.0027 years) or 50 years. This is useful for short-term CDs, savings goals, or comparing investment options with different time horizons.
As of 2025, good high-yield savings accounts offer 4-5% APY, while traditional brick-and-mortar banks often pay under 0.5%. Online banks typically offer much better rates since they have lower overhead costs. Always compare APYs (not APRs) and look for accounts with no fees or minimum balances. For CDs, rates vary by term—longer terms usually pay higher rates, but you lose liquidity. Check current rates at multiple banks before opening an account, as rates change frequently based on Federal Reserve policy.
Disclaimer: This calculator provides estimates for educational purposes. Actual returns may vary based on account terms, fees, taxes, and market conditions. Interest rates change over time and are not guaranteed. For savings accounts and CDs, confirm rates and APYs directly with financial institutions. For important financial decisions, consult with a licensed financial advisor. Past performance doesn't guarantee future results.