This calculator estimates interest using the compound interest formula, accounting for interest on previously earned interest.
Compound interest is calculated on both the principal and previously earned interest. This means your balance grows faster over time compared to simple interest.
Compounding frequency is how often interest is calculated and added to your balance. More frequent compounding (daily vs annual) results in slightly more interest earned.
Simple interest only applies to the original principal. Compound interest applies to the growing balance, so you earn interest on your interest — resulting in exponential growth over time.
Compound interest is used in savings accounts, investment accounts, and most credit cards. It works in your favor when saving, but against you when borrowing.