Interest is the cost of borrowing money or the reward for saving it. Simple interest grows linearly (I = P×R×T), while compound interest grows exponentially (A = P(1+r/n)^nt). Einstein reportedly called compound interest 'the 8th wonder of the world' — the difference becomes dramatic over long periods.
How to Use
Enter investment details:
- Principal: Starting amount
- Rate: Annual interest rate (%)
- Time: Investment duration (years)
- Compounding: How often interest compounds
The Formulas
- Simple: I = P × R × T
- Compound: A = P × (1 + r/n)^(n×t)
- P = principal, R = rate, T = time
- n = compounding frequency per year
The Power of Compounding
$10,000 at 7% for 30 years: Simple = $31,000. Compound (monthly) = $81,165. That's $50,165 more just from compounding!
Step-by-Step Instructions
- 1Enter the principal amount.
- 2Set the annual interest rate.
- 3Choose the time period.
- 4Select compounding frequency.
- 5Compare simple vs compound results.