Quick start
- Enter the starting amount, the yearly rate and the number of years.
- Set how many times a year interest is added: 1 for yearly, 4 for quarterly, 12 for monthly, 365 for daily.
- Compare the three results.
Formulas
- Simple: A = P(1 + rt)
- Compound: A = P(1 + r/n)ⁿᵗ
- Continuous: A = Peʳᵗ
P is the starting amount, r is the yearly rate as a decimal, t is the time in years and n is the number of compounding periods a year.
Example: 50,000 at 8% for 15 years
| Method | Final amount |
|---|---|
| Simple interest | 110,000.00 |
| Compounded yearly | 158,608.46 |
| Compounded monthly | 165,346.07 |
| Continuous | 166,005.85 |
Compounding earns interest on earlier interest, so the gap between simple and compound grows wider every year.
Effective annual rate
8% compounded monthly works out to about 8.30% a year. Comparing effective rates is the fair way to compare accounts that compound at different frequencies.
Doubling time
The rule of 72 gives a quick estimate: divide 72 by the rate. At 8%, money doubles in about 9 years.
Common questions
Which is better for a saver?
Compound interest, and the more often it compounds the better, although the extra gain gets small beyond monthly.
Which is better for a borrower?
Simple interest costs less over the same term.
Is this investment advice?
No. It only shows how the math works.