This simple interest calculator figures the earnings in interest you can get from a deposit at a certain interest rate within specific term (number of years) by comparing a simple versus annually compound rate. There is in depth information on this topic right after the tool.
How does this simple interest calculator work?
The personal finance application helps you calculate either the simple or annually compound interest for a starting investment over a certain number of years with the scope to see the account growth and the difference between the two plans. It uses two interest formulas as explained by the table given below:
Account at the end |
By simple interest |
By annually compounded interest |
Total amount in account |
P*(1 + r*T) |
P *((1 + r)^T) |
Total interest earned |
P *(1 +( r*T)) – P |
(P*((1 + r)^T) – P |
Where:
P = Starting investment
r = Annual interest rate
T = term
As easily can be deducted from the formulas detailed above in case of an annually compound interest, the end amount over a certain period of time is higher than in a case of a simple investment because the earnings are capitalized year by year.
It is based on the following fields:
- The starting deposit which is also called principal or starting amount, initial investment or present value. This is the amount of money available to invest one time.
- Annual interest rate is the rate of return;
- Deposit term is the number of years the savings are deposited.
Example of a result
In case of an analysis of a deposit of $50,000 for a number of 5 years at a return rate of 2.5%, this simple interest calculator will display the table given below:
Account at the end |
By simple interest |
By annually compounded interest |
Total amount in account |
$56,250.00 |
$56,570.41 |
Total interest earned |
$6,250.00 |
$6,570.41 |
How is simple interest calculated?
In order to understand how to estimate it let’s take the following example that might come in handy:
Starting deposit (P): $10,000
Deposit term (T): 10 years
Annual interest rate (r): 9%
Results:
Total interest = (10,000*(1+(9/100)*10))-10,000=$9,000
Total amount at the end = 10,000 + 9,000= $19,000
How is annual compound interest calculated?
Let’s take the same example and try to calculate the annual compound growth:
Initial principal (P): $10,000
Term (T): 10 years
Annual rate (r): 9%
Results:
Total interest = (10,000*(1+(9/100))^10))-10,000=$13,673.64
Total amount = 10,000 + 13,673.64= $23,673.64
19 Dec, 2014