Calculate your earnings with ease! This tool helps you determine the interest earned on savings or investments, whether simple or compound, to plan your financial future effectively.
What is Simple Interest?
Simple interest is calculated on the principal amount over a period without compounding. It applies only to the initial sum, making it predictable.
The formula is:
A = P (1 + rt)
Where:
- A = Total amount (principal + interest)
- P = Principal amount
- r = Annual interest rate (as decimal, e.g., 5% = 0.05)
- t = Time (years)
- Interest = A - P
In simple interest loans, monthly payments cover the month's interest first, with the rest reducing the principal. No interest accrues on interest.
Example Calculation
For a ₹15,00,000 loan at 8% over 5 years:
A = 15,00,000 (1 + 0.08 * 5)
A = 15,00,000 (1 + 0.4)
A = 15,00,000 * 1.4
A = 21,00,000
Interest = 21,00,000 - 15,00,000 = ₹6,00,000
The borrower pays ₹6,00,000 interest plus ₹15,00,000 principal.
What is Compound Interest?
Compound interest is calculated on the principal and accumulated interest, leading to exponential growth. It’s used in savings, investments, and long-term loans, with interest compounding at intervals (e.g., annually, monthly).
The formula is:
A = P (1 + r/n)^(nt)
Where:
- A = Total amount
- P = Principal amount
- r = Annual interest rate (as decimal)
- n = Compounding periods per year
- t = Time (years)
- Interest = A - P
Example Calculation
For a ₹15,00,000 investment at 6%, compounded monthly (n = 12) over 5 years:
A = 15,00,000 (1 + 0.06/12)^(12 * 5)
A = 15,00,000 (1 + 0.005)^60
A = 15,00,000 * 1.3482
A ≈ 20,22,300
Interest = 20,22,300 - 15,00,000 = ₹5,22,300
The investor earns ₹5,22,300 interest, with a total of ₹20,22,300.
Simple Interest Calculator
A simple interest calculator computes interest without compounding. Users input:
- Principal amount
- Annual interest rate
- Time (days, months, years)
The calculator uses A = P (1 + rt) to show total amount and interest.
Example
For a ₹5,00,000 loan at 6% over 3 years:
A = 5,00,000 (1 + 0.06 * 3)
A = 5,00,000 * 1.18
A = 5,90,000
Interest = 5,90,000 - 5,00,000 = ₹90,000
The calculator shows ₹5,90,000 total and ₹90,000 interest.
How to Use
- Select "simple interest.
- "Enter principal (e.g., ₹10,00,000).
- Input rate (e.g., 7%).
- Choose duration (days, weeks, months, years).
- View total and interest.
Compound Interest Calculator
A compound interest calculator computes interest with compounding. Users input:
- Principal amount
- Annual interest rate
- Time
- Compounding frequency (e.g., monthly, quarterly)
The calculator uses A = P (1 + r/n)^(nt) to provide results.
Example
For a ₹5,00,000 investment at 5%, compounded quarterly (n = 4) over 3 years:
A = 5,00,000 (1 + 0.05/4)^(4 * 3)
A = 5,00,000 (1 + 0.0125)^12
A = 5,00,000 * 1.1607
A ≈ 5,80,350
Interest = 5,80,350 - 5,00,000 = ₹80,350
The calculator shows ₹5,80,350 total and ₹80,350 interest.
How to Use
- Select "compound interest."
- Enter principal (e.g., ₹10,00,000).
- Input rate (e.g., 5%).
- Specify duration (years).
- Choose compounding frequency.
- View total and interest.
Benefits of Interest Calculators
- Efficiency: Instant, error-free results.
- Planning: Estimates loan costs or investment growth.
- Comparison: Compares simple vs. compound interest.
- Flexibility: Adjust inputs for scenarios.
- Accessibility: Easy for all users.
Simple vs. Compound Interest
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Definition | Interest earned only on the principal amount. | Interest earned on principal plus accumulated interest. |
| Formula | I = P × R × T | A = P × (1 + R/n)^(n×T) |
| Variables | I = Interest, P = Principal, R = Rate, T = Time | A = Final Amount, P = Principal, R = Rate, n = Compounding Frequency, T = Time |
| Growth | Linear growth over time. | Exponential growth over time. |
| Calculation Frequency | Once, at the end of the term. | Periodically (e.g., monthly, quarterly, annually). |
| Example (P=₹1000, R=5%, T=3 yrs) | I = ₹1000 × 0.05 × 3 = ₹150 Total = ₹1150 |
A = ₹1000 × (1 + 0.05/1)^(1×3) = ₹1157.63 (annually compounded) |
| Use Case | Short-term loans, basic savings accounts. | Long-term investments, savings accounts, loans. |
| Benefit | Predictable, straightforward calculation. | Higher returns due to interest on interest. |
| Drawback | Lower returns over long periods. | More complex to calculate, sensitive to frequency. |
Using simple and compound interest calculators helps make informed financial decisions for borrowing, lending, or investing.
Frequently Asked Questions
What is an interest calculator?
A tool to compute interest earned on savings or investments using simple or compound interest formulas.
What’s the difference between simple and compound interest?
Simple interest is calculated only on the principal. Compound interest includes principal plus accumulated interest.
What inputs are needed?
Principal amount, interest rate, time period, and for compound interest, compounding frequency (e.g., monthly, yearly).