Interest calculator · rate · return
Interest calculator – interest, return and a rate change
Work out simple interest on a principal, the compound return year by year, or what a rise in the interest rate means for your loan in pounds per month.
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Simple interest and compound interest
With simple interest, the interest is always calculated from the original principal:
interest = principal × rate% / 100 × years. A ten-thousand-pound principal at 4.5%
earns £450 a year and £1,350 over three years.
With compound interest, the interest already earned starts to earn too. The gap widens at an accelerating pace over time: in ten years at a 6% return, £5,000 grows to about £8,954, whereas with simple interest the total would be £8,000.
final balance = principal × (1 + rate/100)^years
The rule of 72. The doubling time of a sum is roughly 72 divided by the interest rate. At a 6% return that's 12 years, at 4% it's 18 years. The rule is rough but accurate enough for mental arithmetic.
What a rate rise costs on a loan
When the rate rises two percentage points, the interest cost grows in direct proportion to the loan. On a £180,000 loan, a 2% rate means £3,600 a year and a 4% rate means £7,200 – a difference of £300 a month in the first year.
| Loan | 1% | 2% | 3% | 4% | 5% |
|---|---|---|---|---|---|
| £100,000 | 83 | 167 | 250 | 333 | 417 |
| £180,000 | 150 | 300 | 450 | 600 | 750 |
| £250,000 | 208 | 417 | 625 | 833 | 1,042 |
| £350,000 | 292 | 583 | 875 | 1,167 | 1,458 |
The table shows the interest portion alone on the whole principal. In reality, repayments reduce the principal, so the interest cost falls year by year. You can see the effect of the monthly payment, the total interest and the repayment method with the loan calculator.
Mind the wording: a rate rising from 2% to 4% is two percentage points, but your interest cost doubles, i.e. rises 100%. Both expressions appear in the calculator's result. More on this on the percentage change calculator page.
Interest on an overdue invoice
An unpaid invoice accrues interest from the due date. The method is the same as simple interest, but the time is counted in days:
interest = principal × rate% / 100 × days / 365
Example: a £1,200 invoice is 45 days late and the interest rate is 11%. The interest is
1,200 × 0.11 × 45 / 365 = £16.27. You can work out the same thing on the calculator's first tab by
choosing months as the time unit and entering 1.5 months.
The rate of late-payment interest and any recovery charges are set by contract and by law, and consumer debts have their own limits. Check the current reference rate and rules from your contract terms or the relevant official guidance.
Return before and after tax
An investment's nominal return isn't what you keep. Tax is due on the gain, and inflation eats the rest. A rough rule of thumb for the real return is:
real return ≈ nominal return − inflation
If the return is 6% and inflation is 2%, the growth in purchasing power is about 4%. Once you add tax on the gain, the real accumulation is smaller still. The calculator gives the nominal return – subtract tax and inflation yourself if you want a realistic picture.
This is not investment advice. The calculator assumes a steady annual return, which does not exist in the markets. Real returns vary year to year, and can be negative.
Nominal rate, margin and the APR
- The reference rate (for example SONIA or the Bank of England base rate) moves with the market and is reviewed at the intervals set in the contract.
- The margin is the lender's share, which stays the same for the term.
- The total rate is the sum of these – this is the figure you enter into the calculator.
- The APR also includes charges such as arrangement fees. It is the only figure you can use to compare loan offers with each other.
The calculator uses the rate you enter as-is and doesn't add charges. Always compare loan offers on the APR and ask the lender for an official quotation before you decide.
The basics of interest calculation
With simple interest, the interest is calculated from the original principal; with compound interest, on the accrued interest too.
Formulas and examples
Simple interest
principal × rate% / 100 × yearsExample
£10,000 at 4.5% over 3 years: 10,000 × 0.045 × 3 = £1,350.
Note
The interest is always from the original principal.
Compound interest
principal × (1 + rate/100)^yearsExample
£5,000 at 6% over 10 years: about £8,954.
Note
Interest earned starts to earn too.
Effect of a rate change
loan × (new% − old%) / 12Example
£180,000, 2% → 4%: +£300/mo in the first year.
Note
Covers the first-year interest on the whole principal.
Rule of 72
doubling time ≈ 72 / rateExample
At 6%: 72 / 6 = 12 years.
Note
An approximation, good enough for mental maths.
Concepts and classification
| Nominal rate | The contractual annual rate, without charges. |
|---|---|
| Reference rate | A market rate, e.g. SONIA. Changes at review intervals. |
| Margin | The lender's share of the rate. Stays the same for the term. |
| APR | Includes charges too – the only comparable figure. |
| Rule of 72 | Doubling time ≈ 72 / rate. |
Limitations of the calculator
- The calculator does not include the lender's charges, fees or tax.
- Compound interest assumes a steady annual return, which the markets don't provide.
- The rate-change calculation covers the first-year interest on the whole principal.
- The result is not investment advice or a forecast of future returns.
How up to date the information is
When it was checked
Content and the percentages used were checked on 12 August 2026.
Disclaimer
The calculator gives a mathematical result from the numbers you enter. It is not an official decision, an offer or professional advice. See the terms of use.
Topics
This calculator belongs to the following topic areas. On the topic page you'll find all the calculators and guides on the same theme in one place.
Money calculators
Frequently asked questions about the interest calculator
How do I work out interest on a principal?
Simple interest: principal × rate% / 100 × years. For example £10,000 at four and a half per cent over three years earns 10,000 × 0.045 × 3 = £1,350.
What does compound interest mean?
Interest earned is added to the principal, so it too starts to earn. The formula is principal × (1 + rate/100)^years. The gap over simple interest grows the longer the period.
How much does a one-percentage-point rate rise cost?
It depends on the size of the loan. On a £200,000 loan one percentage point is £2,000 a year, about £167 a month in the first year. The effect shrinks as the loan is repaid.
What is the rule of 72?
A quick mental estimate of the doubling time of a sum: divide 72 by the annual return. At six per cent a sum doubles in about 12 years. It's an approximation, but accurate enough for everyday use.
Does the calculator include the lender's fees?
No. The calculator uses the interest rate you enter as-is. Compare loan offers on the APR, which also includes arrangement fees and other charges.