Compound interest versus simple interest

The compound interest calculator uses future value = P × (1 + r ÷ n)^(n × t). P is the starting amount, r is the annual rate as a decimal, n is the number of compounding periods in a year, and t is time in years. You choose n as 1, 4, 12, or 365.

Simple interest for the same symbols is future value = P × (1 + r × t). Interest is computed once on the original principal. It does not earn interest on interest. This site does not include a separate simple-interest tool on the hub. The sentence is here, so the two formulas stay distinct.

A check that is easy to do by hand is P = $1,000, r = 0.05, t = 1, and n = 1. Compound interest is 1000 × (1 + 0.05 ÷ 1)^(1 × 1) = $1,050.00. Simple interest for one year at 5 percent is also $1,050.00. The formulas diverge when t is longer than one period or when n is greater than 1.

The result on the calculator is an educational figure. It is not investment advice and not a bank quote. A bank APY can include a different compounding convention or fees. This page does not reproduce a deposit disclosure.

The year-by-year table applies the same compound formula at t = 1, 2, and so on, up to 50 rows. It is not an amortization schedule and it is not a loan payment.