Compound Interest Calculator
Easily convert and compare interest rates of different compounding periods. Enter an interest rate and its compounding frequency to see its equivalent rate with a different frequency.
Understanding Compound Interest
Interest is the cost of borrowing money, or alternatively, the income earned from lending money. It can be calculated in two main ways: simple interest and compound interest.
Simple vs. Compound Interest
Simple interest is calculated only on the initial principal amount. For example, $1,000 at 10% simple annual interest for 2 years earns $100 each year, for a total of $200 in interest.
Compound interest is "interest on interest." It's calculated on the principal amount plus the accumulated interest from previous periods. Using the same example, in the first year, you'd earn $100. In the second year, you'd earn 10% on the new balance of $1,100, which is $110. The total interest is $210, demonstrating the power of compounding.
The Impact of Compounding Frequency
The more frequently interest is compounded, the faster your money grows. A 12% annual rate doesn't yield the same as a 1% monthly rate. This is because monthly compounding means your interest starts earning its own interest much sooner.
- Annually: Compounded once per year.
- Semiannually: Twice per year.
- Quarterly: Four times per year.
- Monthly: Twelve times per year.
- Daily: 365 times per year.
Our calculator helps you see the effective difference between these frequencies, allowing for accurate comparisons of different financial products.
Compound Interest Formulas
Standard Compounding
A = P(1 + r/n)^(nt)
- A = the future value of the investment/loan
- P = the principal amount
- r = the annual interest rate (in decimal)
- n = the number of times that interest is compounded per year
- t = the number of years the money is invested or borrowed for
Continuous Compounding
A = Pe^(rt)
This is the mathematical limit of compounding frequency, where 'e' is Euler's number (approximately 2.71828).