Simple vs Compound interest
Simple interest is paid only on the original principal. Compound interest is paid on the principal plus all previously-earned interest, so each year's interest grows the base that earns next year's interest. Over long horizons, compound interest pulls dramatically ahead.
This calculator shows both numbers for the same principal, rate, and time so you can see exactly how much the compounding "bonus" is.
Formula
Simple interest = P × r × t
Compound interest = P × (1 + r)<sup>t</sup> − P
Compounding bonus = compound − simple
Where:
- P = principal (starting amount)
- r = annual rate as a decimal (we accept percent and divide by 100)
- t = years
How to use
- Enter the principal — your starting amount.
- Enter the annual rate as a percentage (e.g. enter
6for 6%). - Enter the time in years.
The calculator instantly shows both interest amounts and the difference.
Worked examples
class="jsx-43013d48d08af43a site-content "0,000 at 6% for 10 years
- Simple: $6,000
- Compound: $7,908.48
- Bonus from compounding: class="jsx-43013d48d08af43a site-content ",908.48
class="jsx-43013d48d08af43a site-content "0,000 at 6% for 30 years
- Simple: class="jsx-43013d48d08af43a site-content "8,000
- Compound: $47,434.92
- Bonus from compounding: $29,434.92
The longer the time horizon, the more dramatic compounding becomes — that's why starting early matters so much for retirement savings.
FAQ
When is interest "simple"?
Most short-term loans (personal loans, some auto loans, treasury bills) use simple interest. The amount you owe each period is a straight percentage of the original loan.
When is interest "compound"?
Savings accounts, CDs, investment accounts, mortgages, and most credit cards use compound interest. The compounding frequency varies — daily, monthly, quarterly, annually — but the principle is the same: each period's interest joins the pool that earns next period's interest.
Why does this calculator assume annual compounding?
For a clean head-to-head against simple interest. Most real-world products compound monthly (12×) or daily (365×) — for those, use our compound interest calculator which lets you set the frequency.
Is compound interest always better?
For savings, yes. For debt, no — it makes balances grow faster. Credit cards compound daily, which is why paying only the minimum keeps you in debt for years.