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Interest is the compensation paid by a borrower to a lender for the use of money, expressed as a percentage or an amount. It is the backbone of nearly every financial instrument in the world — from savings accounts and certificates of deposit (CDs) to mortgages, bonds, and credit cards. Understanding how interest works is essential for making informed decisions about saving, investing, and borrowing.
There are two fundamental methods of accumulating interest: simple interest and compound interest. Our Interest Calculator handles both, with a strong focus on the more realistic and powerful compound interest model.
Simple interest is calculated only on the original principal. It does not earn interest on previously accumulated interest. For example, if you deposit $100 at a 10% annual simple interest rate for two years, you earn $10 each year, for a total of $20 in interest and $120 at the end.
When interest is applied more frequently (monthly, daily), the formula becomes:
Simple interest is rarely used in real-world financial products. Even when people say "interest," they almost always mean compound interest.
Compound interest is calculated on both the initial principal and the accumulated interest from previous periods. This "interest on interest" effect is what makes compound interest so powerful over long time horizons.
Using the same example: $100 at 10% compounded annually. After year 1 you have $110. In year 2, the 10% is applied to $110, giving $11 in interest, for a total of $121. That extra $1 compared to simple interest is the compounding effect.
Where:
For continuous compounding, the formula uses the mathematical constant e:
The more frequently interest is compounded, the higher the effective return. Continuous compounding always yields the highest possible result for a given nominal rate.
The Rule of 72 is a quick mental shortcut to estimate how long it takes for an investment to double at a given interest rate:
For example, at 8% annual return, money doubles in roughly 72 / 8 = 9 years. This rule works best for rates between 6% and 10%, but remains reasonably accurate up to about 20%.
Interest rates can be fixed (constant for the life of the loan or investment) or floating (tied to a reference rate such as the Federal Funds Rate or LIBOR/SOFR). Floating rates fluctuate with market conditions. This calculator assumes a fixed rate throughout the investment period.
This calculator supports both annual and monthly contributions — a common strategy for retirement accounts, dollar-cost averaging, and disciplined savings. The timing of contributions matters:
Over long time horizons, the difference between beginning and end contributions can be substantial.
In many jurisdictions, interest income is taxable. Bonds, savings accounts, and CDs are common examples. Tax reduces the effective compounding rate, because a portion of each period's interest is paid to the government rather than reinvested.
For example, $100 at 6% for 20 years grows to about $320.71 tax-free. At a 25% marginal tax rate, only about $239.78 remains after taxes. This calculator applies the tax rate to each compounding period, giving a realistic after-tax result.
Inflation erodes the purchasing power of money over time. A dollar today buys less in the future. The historical average inflation rate in the U.S. over the past century is roughly 3% per year.
This calculator shows the inflation-adjusted buying power of your ending balance, using:
This helps you understand whether your investment is truly growing in real terms. If your interest rate is lower than inflation, your real wealth is shrinking.
Q: Is this calculator free?
A: Yes, completely free and unlimited. No account required.
Q: Does my data leave my device?
A: No. All calculations happen locally in your browser using JavaScript. Nothing is uploaded.
Q: Can I use this for a loan?
A: Yes, but the math treats the input as an investment that grows. For loans, the "interest" is a cost rather than a gain, but the compounding math is identical.
Q: What is the difference between APR and APY?
A: APR (Annual Percentage Rate) is the nominal rate without compounding. APY (Annual Percentage Yield) includes compounding. This calculator uses the nominal rate and applies compounding internally, effectively producing an APY result.
Q: Why is continuous compounding the highest?
A: Because it compounds infinitely often, capturing the mathematical limit of the compounding formula. It is the theoretical maximum for a given nominal rate.
Q: How accurate are the results?
A: Results are accurate to the cent for the standard compound interest formula. Small rounding differences may appear in schedules due to per-period rounding.