Simple Interest and Compound Interest Calculator and comparison

Enter Principal Amount

Enter the time period

Enter rate of interest(%)

For repayment, interest is typically calculated as a percentage of the loan amount (principal) and added to the principal. The lender expects to be paid interest on the loan amount when you borrow money. Simple interest and compound interest are the two most common types of interest. Understanding the distinctions between them can help you make better financial decisions, save money, and increase your net worth over time.

• Principal Amount:The principal is the amount borrowed or invested from the bank at the start. P stands for the principal.
• Rate: The rate of interest at which the principal amount is handed to someone for a specific period of time; the rate of interest can be 5%, 10%, or 13%, for example. R stands for the rate of interest.
• Time: The length of time for which the major amount is handed to someone is referred to as time. T stands for time.
• Amount:When a person takes out a loan from a bank, he or she must repay the principal borrowed plus the interest, which is referred to as the Amount.

Simple interest

Simple interest is a method of calculating the amount of interest charged on a sum at a given rate and over a specified time period.  the principal amount in simple interest is always the same.

Simple Interest=P×r×n

where:

• P=Principal amount
• r=Annual interest rate
• n=Term of loan, in years

Compound interest

Compound interest accumulates and is added to previous periods' accumulated interest; it is, in other words, interest on interest. Compound interest is calculated as follows:

Compound Interest=P×(1+r)^t + −P                                

where:

• P=Principal amount
• r=Annual interest rate
• t=Number of years interest is applied

Key takeaways

• Interest is a fee that a borrower pays to the lender in exchange for a loan. Simple and compound interest are the two most common types of interest.
• Simple interest is a fixed percentage of the loan amount paid over a set period of time. It is typically owed on mortgages, automobile loans, and personal loans.
• In most cases, simple interest paid or received over a specific time period is a fixed percentage of the principal amount borrowed or lent.
• Compound interest grows and accumulates with other types of interest. In essence, the borrower pays interest on interest in addition to the loan amount.
• Borrowers must pay interest on interest as well as principal since compound interest accumulates and is added to the accumulated interest of prior periods. 
• When investing or depositing money, look for compound interest. It offers a higher rate of return on savings, money market, and certificate of deposit accounts.