Formula: I = P × R × T — instantly calculate interest and compare with compound growth.
Simple Interest
$1,500.00
Total Amount: $11,500.00
Compound Interest (monthly)
$1,614.72
Total Amount: $11,614.72
Daily Rate
0.0137%
Compound Bonus
+$114.72
| Year | Simple Interest | Compound Interest | Difference |
|---|---|---|---|
| 1 | $500.00 | $511.62 | +$11.62 |
| 2 | $1,000.00 | $1,049.41 | +$49.41 |
| 3 | $1,500.00 | $1,614.72 | +$114.72 |
| 4 | $2,000.00 | $2,208.95 | +$208.95 |
| 5 | $2,500.00 | $2,833.59 | +$333.59 |
Simple interest is calculated only on the original principal. The formula is I = P × R × T, where P is the principal, R is the annual interest rate as a decimal, and T is the time in years. This makes it straightforward to predict interest costs for short-term loans and bonds.
Compound interest calculates interest on both the principal and the accumulated interest from prior periods. Over time, compounding results in significantly higher returns for savers (or higher costs for borrowers). The more frequent the compounding — daily, monthly, quarterly — the larger the difference from simple interest.
Simple interest is commonly used for short-term personal loans, auto loans, and some savings bonds. Most mortgages, credit cards, and savings accounts use compound interest, making it important to know which type applies to your financial product.