The Money Decoded

Calculators

Interest Calculator

Educational content only — not financial advice

A $5,000 credit card balance at 22% APR with no payments grows to roughly $7,800 in two years — the same compounding mechanism that makes a $5,000 savings deposit at 4.5% slowly tick upward. The math is symmetric; only the direction of the cash flow changes. Pick savings or loan below, choose simple or compound interest, and enter your numbers to see what either side produces.

Final balance

$5,675.00

Interest earned
$675.00
Starting amount
$5,000.00

The formulas behind the calculator

For simple interest:

I = P × r × t

For compound interest:

A = P × (1 + r/n)^(n × t)
  • I is the interest amount.
  • A is the final balance (principal plus interest).
  • P is the principal — the starting amount.
  • r is the annual interest rate as a decimal (5% becomes 0.05).
  • n is the number of compounding periods per year.
  • t is the time in years.

A worked example

Take a $5,000 savings deposit at 4.5% annual interest, compounded monthly, for three years.

  • Final balance: $5,000 × (1 + 0.045/12)^(12 × 3) ≈ $5,721
  • Interest earned: $5,721 − $5,000 = $721
  • Same deposit at simple interest: $5,000 × 0.045 × 3 = $675
  • Compounding advantage over three years: ~$46

Over three years the compounding advantage is small. Over thirty years on the same numbers it grows to several thousand dollars — which is why the same mechanism that helps long-term savings also quietly punishes high-interest debt over long periods.

Pair this calculator with the explainer

For the conceptual background — what an interest rate actually represents, how rates are set, and the difference between fixed and variable rates — see our companion piece: What Is an Interest Rate Explained. For the related distinction between interest rate and APR, see what is APR vs interest rate.

Run a credit card balance through the loan / compound / daily combination once. The result is usually the most persuasive argument anyone has ever made for paying down high-interest debt before doing almost anything else with extra cash.

Frequently asked questions

What's the difference between simple and compound interest?

Simple interest is calculated only on the original principal — a $1,000 loan at 5% simple interest accrues $50 every year, period. Compound interest is calculated on principal plus accumulated interest — a $1,000 deposit at 5% compounded annually grows by $50 in year one, $52.50 in year two (5% of $1,050), and so on. Most savings accounts and credit cards use compound interest; some short-term loans and bonds use simple interest.

Which mode should I use for a credit card balance?

Loan balance, with the compound interest method and daily compounding. Most U.S. credit cards calculate interest by compounding daily, which is why a small unpaid balance can grow much faster than people expect when only the minimum is paid.

Why does the result barely change for short time periods?

Compounding has very little effect over short periods because there's not much accumulated interest yet to earn interest on. The exponential effect only becomes meaningful over multi-year horizons. Over six months at 5%, simple and compound interest produce nearly the same result; over thirty years, the gap is enormous.

Does this calculator account for monthly contributions?

No — this calculator computes interest on a fixed starting amount over time. For scenarios involving regular monthly deposits, see the compound interest calculator, which handles a starting balance plus recurring contributions in one combined calculation.

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