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Interest Calculator
USD
%
years
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Simple vs Compound Interest
This calculator helps you compare simple interest and compound interest calculations. Understanding the difference between these two types of interest is crucial for making informed financial decisions.
Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any previously earned interest, leading to exponential growth over time.
Interest Formulas
Simple Interest:
I = P × r × t
- • I = Interest
- • P = Principal
- • r = Interest rate (as decimal)
- • t = Time in years
Compound Interest:
A = P(1 + r/n)^(nt)
- • A = Final amount
- • P = Principal
- • r = Annual interest rate
- • n = Compounding frequency per year
- • t = Time in years
Key Differences
- Simple Interest: Linear growth, easier to calculate, typically used for short-term loans
- Compound Interest: Exponential growth, more beneficial for investments and savings over time
- The difference becomes more significant over longer time periods
- Higher compounding frequencies (daily vs annually) increase returns
Related Financial Calculators
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