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Calculate simple or compound interest on any principal amount over a given time period.
Simple Interest:
I = P × r × t
Compound Interest:
A = P × (1 + r/n)^(n×t)
Where: P = principal, r = annual rate, t = years, n = compounding periods per year
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus accumulated interest, causing exponential growth over time.
More frequent compounding produces higher returns. Daily compounding earns slightly more than monthly, which earns more than annual. The effective annual rate (EAR) captures this difference.
The EAR is the actual annual interest rate accounting for compounding. A 6% rate compounded monthly has an EAR of 6.17% because interest compounds on previously earned interest each month.
Simple interest is typically used for short-term loans, car loans, and some personal loans. Compound interest is used for savings accounts, mortgages, credit cards, and most investment accounts.
Divide 72 by the annual interest rate to estimate the number of years needed to double your money. At 6% compound interest, money doubles in roughly 72 / 6 = 12 years.