Interest Calculator
$
5.00%
10 yrs
Total Interest$6,470.09
Final Amount$16,470.09
Effective Annual Rate5.12%
This interest calculator shows how a principal grows when interest compounds, and reports the effective annual rate that results from compounding more than once a year. Enter a deposit, a nominal annual rate, a time horizon, and a compounding frequency to see the final balance and the total interest earned. Because the effective rate captures interest-on-interest, it is always at least as high as the stated nominal rate.
Formula
A = P(1 + r/n)^(nt); EAR = (1 + r/n)^n − 1
- A
- Final amount after compounding
- P
- Principal (initial deposit)
- r
- Nominal annual rate as a decimal
- n
- Compounding periods per year
- t
- Number of years
How it works
- Enter the principal, the nominal annual interest rate, the number of years, and how often interest compounds (annual, semiannual, quarterly, monthly, or daily).
- The calculator applies the compound interest formula to grow the principal across every period, then subtracts the principal to report total interest earned.
- It also computes the effective annual rate, which converts the nominal rate plus its compounding frequency into the single yearly rate that produces the same growth.
Worked example
$10,000 at a 5% nominal rate for 10 years, compounded monthly.
- Monthly rate: 0.05 ÷ 12 = 0.0041667; periods: 12 × 10 = 120.
- Final amount: 10,000 × (1.0041667)^120 ≈ $16,470.09.
- Total interest: 16,470.09 − 10,000 = $6,470.09.
- Effective annual rate: (1 + 0.05/12)^12 − 1 ≈ 5.12%.
Final balance about $16,470.09, total interest $6,470.09, and an effective annual rate of 5.12%.
Frequently asked questions
- What is the difference between nominal and effective rate?
- The nominal rate is the stated annual rate before compounding, while the effective annual rate reflects the actual yearly growth once compounding is applied. The more often interest compounds, the more the effective rate exceeds the nominal rate.
- Does this calculator include regular contributions?
- No. It grows a single lump-sum principal. If you plan to add money on a recurring schedule, use a future value or investment calculator that incorporates periodic deposits.
- How much does compounding frequency matter?
- At low rates the difference is small, but it grows with higher rates and longer horizons. Daily compounding always beats annual compounding at the same nominal rate because interest starts earning interest sooner.
- Is this simple or compound interest?
- This tool computes compound interest, where each period earns interest on the prior balance including accumulated interest. Simple interest, which is charged only on the original principal, grows more slowly.