Simple vs Compound Interest Calculator
Simple and compound interest start at the same rate but end up worlds apart. This calculator puts them side by side on the same balance so you can see exactly how much compounding adds — and why the gap grows wider every year.
How this calculator works
Simple interest is charged only on the original principal. After t years at annual rate r:
simple = P · (1 + r · t)
Compound interest is charged on the principal plus all previously accumulated interest, so it grows exponentially:
compound = P · (1 + r)ᵗ
Early on, the two are nearly identical. But because compounding earns “interest on interest,” the difference accelerates — over decades it becomes dramatic.
Where you meet each one
Most savings accounts, investments, and loans compound. Pure simple interest is rarer but appears in some bonds, certain short-term loans, and many car loans’ interest accrual. Knowing which one applies tells you whether time is working for you or against you.
Frequently asked questions
- Is compound interest always better?
- When you're earning it (saving or investing), yes — compounding grows your money faster. When you're paying it (debt), compounding works against you, which is why high-interest debt is so costly.
- Why does the gap grow over time?
- Simple interest adds the same amount every year. Compound interest adds a percentage of an ever-larger balance, so each year's gain is bigger than the last. Given enough time, the compound curve pulls far ahead.
- Does compounding frequency matter here?
- This comparison uses annual compounding for clarity. More frequent compounding (monthly, daily) increases the compound result slightly more — see the APR to APY and compound interest calculators to explore that.