Interest Rate Calculator
Calculate simple interest, compound interest, effective rates, and real rates
Interest calculated on principal plus accumulated interest. Formula: P(1 + r/n)^(nt)
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Interest Rate Concepts
Simple Interest
Interest calculated only on the original principal. Formula: I = P × r × t. Used for short-term loans and some bonds. Does not account for reinvestment of interest payments.
Compound Interest
Interest calculated on principal plus accumulated interest. Formula: A = P(1 + r/n)^(nt). More frequent compounding leads to higher returns. The power of compounding significantly increases long-term returns.
Effective Annual Rate (APY)
The actual annual rate earned or paid after accounting for compounding. Formula: (1 + r/n)^n - 1. APY is always greater than or equal to APR. Use APY to compare investments with different compounding frequencies.
Real Interest Rate
The nominal rate adjusted for inflation using Fisher equation: (1 + nominal) / (1 + inflation) - 1. Measures actual purchasing power gained or lost. Important for long-term financial planning and understanding true investment returns.