Compare simple interest with annual compounding using a starting principal, annual rate, and investment period.
Results:
Final Amount: $0.00
Interest Earned: $0.00
Simple vs. Compound Interest
Enter a starting principal, annual interest rate, time in years, and interest type. For simple interest, the calculation is I = P × r × t, so interest is calculated only on the original principal. For compound interest, this tool applies annual compounding: A = P × (1 + r)^t. The displayed interest is the final amount minus the principal.
Important assumptions
The rate is treated as a constant annual rate and the compound option compounds once per year. There are no additional deposits, withdrawals, taxes, account fees, or inflation adjustments in the model. Results are sensitive to the rate and duration entered.
Financial note: A projection is not a guaranteed return and should not be treated as personal investment advice.
Worked example
Example: $1,000 at 5% simple interest for 2 years earns $100 in interest. With annual compounding, the balance is $1,102.50, because the second year also earns interest on the first year’s interest.