How to Compare Compound and Simple Interest Across Monthly, Quarterly and Annual Terms
Learn how principal, rate, duration and compounding frequency combine into a maturity value, and how that compares to a simple interest payout.
Compound Interest Calculator
Introduction
Compounding adds earned interest back to the principal so that each period earns interest on a larger balance. The Compound Interest Calculator lets you set a deposit, annual rate, duration and compounding frequency, then shows the compound maturity value next to what the same deposit would earn under simple interest. All figures update instantly in the browser.
Step-by-Step Instructions
- Drag the Initial Deposit (Principal) slider to your lump sum, from 5,000 to 50,00,000 in 5,000 steps.
- Set the Annual Interest Rate (%) slider between 1% and 25% in 0.5% increments.
- Choose the Time Duration (Years) slider value, from 1 to 30 years.
- Select a Compounding Frequency button: Monthly, Quarterly or Annually.
- Compare the Compound Interest Maturity card against the Simple Interest Maturity Comparison card to see the extra interest earned through compounding.
Key Use Cases
- Bank Deposit Check: Model a quarterly compounded term deposit and confirm the maturity figure quoted by the bank.
- Frequency Impact: Switch the same deposit between Monthly and Annually to see how much the compounding interval matters over a decade.
- Simple vs Compound Loans: Compare a simple interest arrangement against a compounded one over the same term.
Frequently Asked Questions
What formula is used for the compound maturity value?
The tool calculates principal x (1 + r/n)^(n x t), where r is the annual rate as a decimal, n is the number of compounding periods per year (12, 4 or 1) and t is the number of years. Interest earned is the maturity value minus the principal.
How is the simple interest comparison calculated?
Simple interest is principal x rate x years / 100 and is added to the principal once at the end. It uses the same principal, rate and duration as the compound result, so the gap between the two cards is purely the effect of compounding.
Can the calculator model monthly contributions or a different currency?
No. It models a single lump sum deposit with no recurring additions, and amounts are displayed with the rupee symbol. The ratio between compound and simple results is the same in any currency, so the figures can be read as units of any currency you prefer.