Interest is the cost of borrowing money or the return earned on savings. The two most common ways to describe it are simple interest and compound interest. They can produce very different results over time.
Simple interest
Simple interest is calculated only from the original principal. A common formula is principal × annual rate × time. If 1,000 earns 5% simple interest for two years, the interest is 100.
Compound interest
Compound interest adds earned interest to the balance. Future interest can therefore be calculated on both the original amount and earlier interest. The compounding frequency—monthly, quarterly or yearly—matters because it changes how often the balance grows.
What a calculator cannot know
A calculator can show a mathematical estimate, but it cannot know account fees, tax treatment, withdrawal rules, variable rates or the exact dates a provider uses. Read the product terms before relying on a result.
For debt and savings
For loans, interest and fees increase the amount repaid. For savings, regular deposits can have a large effect because each deposit has a different time to grow. Use the same time unit for rate, payments and term.
Quick questions
Is a higher compounding frequency always better?
For the same positive rate, more frequent compounding generally increases the future balance slightly.
Is an estimate a financial recommendation?
No. It is a calculation based on the numbers entered, not financial advice.
Last reviewed: 5 September 2026. If you spot an error, use our feedback page.