How to calculate interest
To calculate interest, multiply the balance by the annual rate and by the time in years; that is simple interest. Compound interest repeats the step each period on the new, larger balance.[1][2]
- Convert the rate to a decimal. 4% is 0.04.
- Express the time in years. 18 months is 1.5 years; 90 days is 90/365 of a year.
- Simple interest: $10,000 × 0.04 × 5 = $2,000.
- Compound interest, monthly: divide the rate by 12, compound for 60 months: 10,000 × (1 + 0.04/12)60 − 10,000 = $2,209.97.
Simple vs compound interest over time
The gap between simple and compound interest is small at first and widens every year. On $10,000 at 4%:
| Time | Simple interest | Compounded monthly | Difference |
|---|---|---|---|
| 1 year | $400.00 | $407.42 | $7.42 |
| 5 years | $2,000.00 | $2,209.97 | $209.97 |
| 10 years | $4,000.00 | $4,908.33 | $908.33 |
| 20 years | $8,000.00 | $12,225.82 | $4,225.82 |
For one year the two differ by a few dollars; over 20 years compounding adds thousands. The full growth schedule with deposits is on the compound interest calculator, and the simple interest calculator solves I = P × r × t for any of its four parts.
Interest per day, month and year
Interest per day is the yearly interest divided by 365: $10,000 at 4% earns $400 a year, about $33.33 a month or $1.10 a day. Banks credit savings interest daily or monthly and pay it monthly in most cases, so a statement shows slightly more than the simple monthly figure once interest starts compounding; the daily compound interest calculator shows the day-by-day growth. For a balance-by-balance table, see how much interest will I earn.
Interest rate vs APY
The interest rate is the nominal yearly rate before compounding; the annual percentage yield (APY) is what the account actually earns in a year with compounding included. Under the Truth in Savings Act's Regulation DD, U.S. banks must state the APY on deposit accounts.[3] At 4% compounded monthly the APY is 4.074%; compounded daily it is 4.081%. When an account quotes only an APY, enter it with annual compounding and the calculator matches the bank. Convert either way with the APY calculator.
Where today's deposit rates stand
Rates vary widely between banks. The FDIC publishes a monthly national average rate for savings, money market accounts and CDs, which is a useful baseline when you compare an offer.[5] The high-yield savings calculator shows those averages and turns the gap between two rates into dollars.
Taxes on interest
Interest is taxable income in most cases. Banks report interest of $10 or more on Form 1099-INT, and interest is reportable even when you do not receive a form.[4] Interest on U.S. Treasury bills and savings bonds is exempt from state and local income tax; the T-bill calculator shows what that is worth.
Related calculators
- Compound interest calculatorDeposits, any compounding, inflation, goal seek, chart and CSV
- Simple interest calculatorI = P × r × t, solved for interest, principal, rate or time
- APY calculatorAPR to APY and back, for any compounding
- How much interest will I earn?Interest per day, month and year on any balance, with tables
Frequently asked questions
How do I calculate interest on a sum of money?
For simple interest multiply principal × rate × years: $10,000 × 0.04 × 5 = $2,000. For compound interest use P(1 + r/n)nt − P.
How much interest does $10,000 earn in a year?
At 4% it earns $400 of simple interest, or $407.42 if interest compounds monthly. At 1% it earns $100.
What is the difference between simple and compound interest?
Simple interest is paid only on the original principal. Compound interest is paid on the principal and on interest already added, so it grows faster the longer the money stays.
How do I calculate monthly interest?
Divide the annual rate by 12 and multiply by the balance. $10,000 at 4% earns about $33.33 in a month.