Simple Interest Calculator · Practical guide
Simple Interest vs Compound Interest
Simple interest grows in a straight line; compound interest snowballs. The gap widens every year.
At a glance
The Core Difference
Simple interest is calculated only on the original principal: I = P × r × t. Compound interest also earns interest on previously accumulated interest. At the same rate and term, compounding always produces more growth.
Interactive tool
Simple Interest Calculator
Enter your own values, then compare the result with the examples below.
Simple Interest Results
$10,000 at 5%: Side by Side
| Years | Simple Interest Total | Compound Total (Yearly) | Compound Advantage |
|---|---|---|---|
| 1 | $10,500.00 | $10,500.00 | $0.00 |
| 3 | $11,500.00 | $11,576.25 | $76.25 |
| 5 | $12,500.00 | $12,762.82 | $262.82 |
| 10 | $15,000.00 | $16,288.95 | $1,288.95 |
| 20 | $20,000.00 | $26,532.98 | $6,532.98 |
Why the Gap Accelerates
After one year the two are identical — both earn $500 on $10,000 at 5%. From year two onward, the compound balance keeps earning 5% on a bigger number, while the simple balance earns 5% on the same $10,000 forever. That is why the 20-year difference reaches $6,532.98.
When Each One Applies to You
As a saver, you want compounding — savings accounts, CDs, and investments all compound. As a borrower, simple interest is friendlier: short-term personal loans and many auto loans charge it, and the interest never snowballs. Use the calculator above to price any simple-interest scenario, then compare it against a compounded alternative.
Frequently Asked Questions
Which is better for a savings account?
Compound interest, and the more often it compounds the better. A daily-compounding account at 5% APY beats a simple-interest account at the same stated rate every time.
Do credit cards use simple or compound interest?
Compound — most cards compound daily, which is why carrying a balance gets expensive fast.
Is there a quick way to estimate compounding?
The Rule of 72: divide 72 by the annual rate to estimate the years needed to double your money. At 5%, money doubles in about 14.4 years.
Can a loan charge simple interest but still cost more than compounding?
If the simple rate is much higher, yes. Always compare total interest paid, not just the interest type — a 12% simple loan costs more than an 8% compounding one over the same term.