Calculate simple and compound interest on your savings or investments.
Interest Earned
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Total Amount
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Effective Rate
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What is Interest?
Interest is the cost of borrowing money or the return on invested money. When you deposit money in a savings
account, the bank pays you interest. When you take a loan, you pay interest to the lender.
There are two main types of interest: simple interest and compound
interest. Understanding the difference is crucial for making informed financial decisions.
Simple vs Compound Interest Formulas
Simple Interest
SI = P × r × t
SI = Simple Interest · P = Principal · r = Annual rate (decimal) · t = Time in years
Simple interest is calculated only on the original principal amount. It does not compound — meaning interest
earned does not itself earn interest.
Compound Interest
A = P × (1 + r/n)^(n×t)
A = Final amount · P = Principal · r = Annual rate · n = Compounding frequency · t =
Time in years
Compound interest is calculated on the principal plus any previously accumulated interest. This "interest on
interest" effect causes wealth to grow exponentially over time — often called the eighth wonder of the world.
Compound interest earns ₹8,985 more than simple interest in the same period!
Frequently Asked Questions
Compounding frequency is how often interest is calculated and added to your
balance. Common frequencies: annually (1×), semi-annually (2×), quarterly (4×), monthly (12×), and daily
(365×). More frequent compounding results in higher returns.
For savings/investments, compound interest is better as you earn interest on
your interest. For loans, simple interest is better (for borrowers) as the total cost is lower. Most
modern bank accounts use compound interest.
The effective annual rate accounts for compounding and shows the true annual
return. A 12% rate compounded monthly has an EAR of about 12.68%. EAR = (1 + r/n)^n – 1.
The Rule of 72 is a quick way to estimate how long it takes to double your
money. Divide 72 by the annual interest rate. Example: at 8% interest, your money doubles in
approximately 72 ÷ 8 = 9 years.