What's the difference between simple and compound interest?

Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal plus accumulated interest from previous periods. Compound interest grows your money faster because you earn interest on interest.

How often should interest compound for maximum growth?

The more frequently interest compounds, the more you earn. Daily compounding yields more than monthly, which yields more than annual. However, the difference between daily and continuous compounding is minimal. Focus on finding the highest APY (annual percentage yield).

What is APY and how is it different from APR?

APY (Annual Percentage Yield) includes the effect of compounding, showing the actual rate earned in a year. APR (Annual Percentage Rate) is the stated interest rate without compounding effects. APY is always equal to or higher than APR.

How does compounding frequency affect my returns?

More frequent compounding means interest is added to your principal more often, creating more opportunities for interest to earn interest. The difference between monthly and daily compounding might seem small but can add up significantly over decades of investing.

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Interest Calculator

Calculate simple and compound interest growth over time.

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Understanding the Formula

Compound Interest Formula: A = P(1 + r/n)^(nt)

Where:
A = Final amount
P = Principal balance
r = Annual interest rate (decimal)
n = Number of times interest applied per time period
t = Number of time periods elapsed

Compound interest is "interest on interest." It makes a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.