Simple vs Compound Interest Calculator
Compare simple interest against compound interest on the same principal, rate and term — and see the gap compounding creates.
How it works
Simple: A = P (1 + r·t) · Compound: A = P (1 + r/n)^(n·t) · r = rate, t = years, n = compounds per year
Simple interest is paid only on the original principal, so it grows in a straight line — the same dollar amount each year. Compound interest is paid on the principal plus all previously accrued interest, so the balance grows faster and faster. The gap between them is small over a year or two but widens dramatically over long horizons, which is why compounding is the engine behind long-term investing and the reason high-rate debt is so punishing.
Worked example
$10,000 at 7% for 10 years earns simple interest of 10,000 × 0.07 × 10 = $7,000, for $17,000. Compounded monthly it grows to 10,000 × (1 + 0.07/12)^120 ≈ $20,097 — about $3,097 more, purely from interest earning its own interest.
Sources: Compound interest
Frequently asked questions
When is interest simple versus compound?
Many bonds, car loans and some personal loans use simple interest on the principal. Savings accounts, credit cards, mortgages and most investments compound. Always check which applies, because over years the difference is large.
Does compounding frequency matter much?
It helps, but with diminishing returns. Moving from annual to monthly compounding adds a bit; monthly to daily adds only a little more. The rate and the time horizon drive far more of the result than the frequency.
Why is compound interest called the eighth wonder?
Because interest earning interest snowballs. Early growth is modest, but each period builds on a larger base, so the curve steepens over time — rewarding patient savers and penalizing anyone who lets high-interest debt sit.
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Educational estimate, not financial advice. Actual loan terms, fees and interest depend on your lender and credit profile.