You enter a principal amount, annual interest rate, time period (in years, months, or days), and choose simple or compound interest. Simple interest uses A = P(1 + rt), where interest is earned only on the original principal. Compound interest uses A = P(1 + r/n)^(nt), where n is the compounding frequency — each period's interest is added to the principal so future periods earn interest on interest. The tool converts all time inputs to years internally before computing.
Simple interest is calculated only on the original principal — it grows linearly. Compound interest adds each period's earnings back into the principal, so you earn interest on interest. Over time, compounding produces significantly more growth, especially at higher rates and longer periods.
More frequent compounding earns slightly more interest. At 5% on $10,000 for 10 years, annual compounding yields about $16,289 while daily compounding yields about $16,487 — a difference of roughly $198. The effect is more pronounced at higher rates and longer periods.
APR (Annual Percentage Rate) is the stated rate without compounding. APY (Annual Percentage Yield) includes the effect of compounding and is always equal to or higher than APR. Banks advertise savings APY (which looks bigger) and loan APR (which looks smaller).
No. Interest income is generally taxable at your ordinary income tax rate. The amounts shown here are gross (pre-tax). Your actual net return will be lower once federal and state income taxes are applied to the interest earned.
Estimate only. Results reflect your inputs and standard formulas. Double-check important decisions independently.