Use this calculator to see how much interest a sum of money earns, or how much interest you owe on a balance. Type the starting amount, the yearly interest rate and the length of time. You can enter the time in years or in months. Then pick whether you want simple interest or compound interest.
Simple interest is paid only on the original amount, so it grows in a straight line. Compound interest is paid on the original amount and on the interest that was already added, so it grows faster the longer you leave it. If you choose compound interest, also pick how often the interest is added: daily, monthly, quarterly, twice a year or once a year.
After you press Calculate, you will see the interest earned, the final amount, and the average interest per year and per month. The tool also shows both methods side by side, so you can see how much extra the compounding adds. This comparison is useful when you are deciding between two accounts or checking the terms of a loan.
Simple interest is found with: interest = principal x rate x time, where the rate is written as a decimal and the time is in years. The final amount is the principal plus that interest.
Compound interest uses: final amount = principal x (1 + rate / m) raised to (m x time), where m is how many times per year the interest is added. The interest earned is the final amount minus the principal. The effective yearly rate is (1 + rate / m) raised to m, minus 1, and it shows what the rate really works out to over a full year.