Interest Calculator

This calculator computes interest earned or owed under either simple or compound methods, and always shows both side by side so you can see in dollars exactly how much compounding adds over the same principal, rate, and time period.

For personal planning only — not financial advice.

Reviewed by CalculatorDrive Finance Editorial Board · Last updated July 22, 2026

Your Details

Principal Amount

Annual Interest Rate

Time Period

Unit

Interest Type

Simple Compound

Compound Frequency

Enter your principal, interest rate, and time period. Choose simple or compound interest, then click Calculate to see your results with charts and yearly breakdown.

Final Amount

Interest Earned

Effective Rate

Simple vs Compound Interest

Simple Interest

Compound Interest

Difference

Principal vs Interest

Balance Growth

Yearly Breakdown

Year	Interest	Total Interest	Balance

The short answer

On $10,000 at 5% for 5 years, simple interest earns exactly $2,500 — always principal × rate × time, nothing more. Compound interest (monthly) earns $2,833.59 over the same stretch, $333.59 more, because each month's interest gets added to the balance before the next month's interest is calculated.

Key takeaways

$10,000 at 5% for 5 years: simple interest = $2,500.00 exactly; compound interest (monthly) = $2,833.59.
The compounding advantage here is $333.59 — small relative to the principal, but it grows faster than linearly as time or rate increases.
A 5% nominal rate compounded monthly has an effective annual rate of 5.116%, not 5% — compounding itself adds a small amount beyond the stated rate.
Simple interest never changes based on compounding frequency; compound interest grows faster the more often it's applied (daily > monthly > annually).

Simple interest: a flat, predictable formula

Interest = Principal × Rate × Time

= $10,000 × 0.05 × 5 = $2,500.00

Simple interest grows in a straight line — the same $500 gets added every single year, regardless of how much the balance has grown. That predictability is exactly why it's used for many short-term loans and some bonds: the payoff amount at any point in time is trivial to calculate in advance.

Compound interest: earning interest on interest

Final Amount = Principal × (1 + rate ÷ n)^(n × years)

= $10,000 × (1 + 0.05 ÷ 12)^(12 × 5) = $12,833.59

Unlike simple interest, compound interest curves upward — each period's interest becomes part of the balance that earns interest in the next period. The $333.59 gap over simple interest is modest at 5 years and 5%, but stretch either the rate or the time horizon and that gap widens fast, since it compounds on itself rather than growing linearly.

Compound Interest Calculator — add periodic contributions on top of compound growth.
CD Calculator — apply this same compounding math to a real certificate of deposit.
Savings Calculator — model a savings account with regular deposits alongside compound interest.

Frequently Asked Questions

What is the difference between simple and compound interest?

Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus interest already earned. On $10,000 at 5% for 5 years, simple interest earns exactly $2,500, while compound interest (monthly) earns $2,833.59 — $333.59 more from earning interest on interest.

How does compounding frequency affect my returns?

More frequent compounding (daily or monthly instead of annually) adds interest to your balance sooner, which slightly increases total earnings. The difference is modest at low rates but becomes more noticeable over long time horizons.

What is an effective interest rate?

The effective rate reflects your actual annual return after compounding is taken into account. A stated 5% rate compounded monthly has an effective annual rate of 5.116% — slightly higher than the nominal 5%, because interest is added to the balance twelve times a year instead of once.

What is the Rule of 72?

Divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 7% interest, your balance roughly doubles in about 10 years.

When should I use simple interest instead of compound?

Simple interest is common for short-term loans and some bonds. Compound interest applies to most savings accounts, investments, and long-term deposits. Match the method to how your account or loan actually accrues interest.

How do I use this interest calculator?

Enter your principal, annual rate, and time period, then choose simple or compound interest and a compounding frequency. Click Calculate to see your final amount, interest earned, and a year-by-year breakdown.