Interest Calculator
Calculate simple and compound interest for your investments and loans.
Understanding Interest Calculations
Interest is the cost of borrowing money or the reward for saving it. There are two main types of interest: simple interest and compound interest.
Simple Interest
Simple interest is calculated only on the initial principal. It does not account for accumulated interest over time.
A = P(1 + rt)
A is the final amount, P is the principal, r is the interest rate (as a decimal), and t is the time period.
Compound Interest
Compound interest is calculated on the initial principal and also on the accumulated interest over previous periods. This leads to exponential growth over time.
A = P(1 + r/n)^(nt)
A is the final amount, P is the principal, r is the interest rate (as a decimal), n is the number of times interest is compounded per time period, and t is the number of time periods.
Compounding Frequency
The frequency with which interest is calculated and added to the principal affects the total return. More frequent compounding results in higher returns. Common compounding frequencies include annually, semi-annually, quarterly, monthly, and daily.
Time Units
Interest calculations can use different time units (years, months, days). The calculator automatically converts these to ensure accurate calculations.
Interest Rate Units
Interest rates can be expressed in yearly, monthly, or daily terms. The calculator normalizes these to annual rates for consistent calculations.
Effective Annual Rate
The effective annual rate (EAR) is the actual annual rate of interest when compounding is taken into account. It allows for comparison of different interest rates with different compounding frequencies.
Practical Examples
Understanding interest calculations is essential for financial planning, whether for savings, investments, or loans. Compare options to make informed financial decisions.