Interest Calculator · Practical guide
Simple vs Compound Interest
Compound interest earns interest on interest — and the gap grows bigger every year.
At a glance
Simple vs Compound Interest: The Difference
Simple interest is paid only on your original principal, so it grows in a straight line. Compound interest is paid on the principal plus all previously earned interest, so growth accelerates. On $10,000 at 5% for 10 years, simple interest earns exactly $5,000 (total $15,000), while monthly compounding earns $6,470.09 (total $16,470.09) — about 29% more, with no extra risk or deposits.
Interactive tool
Interest Calculator
Enter your own values, then compare the result with the examples below.
Results
Same Money, Same Rate, Different Result
The table below uses $10,000 at 5% for 10 years, exactly as the calculator computes it:
| Method | Interest Earned | Total After 10 Years |
|---|---|---|
| Simple interest | $5,000.00 | $15,000.00 |
| Compounded annually | $6,288.95 | $16,288.95 |
| Compounded monthly | $6,470.09 | $16,470.09 |
| Compounded daily | $6,486.65 | $16,486.65 |
The Formulas
Simple interest: Interest = P × r × t, where P is principal, r is the annual rate, and t is years. Compound interest: Total = P(1 + r/n)^(nt), where n is the number of compounding periods per year. Both are computed by the calculator above — choose "Simple Interest" or a compounding frequency from the dropdown.
When Each One Applies
Simple interest shows up in some short-term and auto loans, where you pay interest only on the amount originally borrowed. Compound interest governs savings accounts, CDs, credit cards, and investments. As a saver, compounding works for you; as a borrower, it works against you — credit card balances compound daily, which is why carrying a balance gets expensive fast.
Frequently Asked Questions
Which earns more, simple or compound interest?
Compound interest always earns more than simple interest at the same rate and term, because each period's interest is added to the base for the next period. The longer the time frame, the wider the gap.
Is simple interest ever better?
For borrowers, yes. A simple-interest loan only charges interest on the original principal, so you pay less overall than with a compounding loan at the same rate.
How much more does daily compounding earn than monthly?
Not much. On $10,000 at 5% over 10 years, daily compounding earns $6,486.65 versus $6,470.09 monthly — a difference of about $16. Frequency matters far less than rate and time.
Do credit cards use compound interest?
Yes. Most credit cards compound interest daily on unpaid balances, which is why carrying a balance month to month grows so quickly.