Interest Calculator

Savings accounts, CDs and credit cards compound. Most US car loans and many personal loans use [simple interest](/financial/simple-interest-calculator) on the outstanding balance.

If you are unsure, the account agreement will say. On a loan the practical test is whether paying early saves you money: with simple interest it does.

APR is used for borrowing and includes fees. APY is used for savings and includes compounding. Both express an effective annual rate.

A 5% rate compounded monthly is a 5.116% APY. Lenders advertise APR because it is the lower number; savings accounts advertise APY for the opposite reason.

On APY, always. It already accounts for compounding frequency, so two APYs are directly comparable and two stated rates are not.

Then check the conditions: minimum balances, introductory rates that expire, and whether the rate applies to your whole balance or only part of it.

Use the rule of 72: divide 72 by the rate. At 5% that is about 14.4 years, and the exact figure is 14.2.

It works in reverse too. Credit card debt at 22% doubles in a little over three years if you make no payments at all.

Usually one of three reasons. The rate may have been introductory and expired, the account may have tiered rates requiring a minimum balance, or interest is taxable and you are comparing after-tax to before-tax.

Inflation is the fourth. A 5% rate with 3% inflation is a real return of about 1.9%, which is the figure that reflects what your money can actually buy.

Less than the method does. On $10,000 at 5% over ten years, annual compounding gives $6,289 and monthly gives $6,470, a difference of $181.

Moving from simple to compound is worth $1,289 over the same period. Choose an account on APY and do not agonise over daily versus monthly.

No single body sets the rate you are offered. The Federal Reserve sets a target for the federal funds rate, which is what banks charge each other overnight. Its policy committee meets eight times a year to review it.

Everything else follows from that at a distance. Banks set their prime rate from it, usually about 3 points higher, and credit cards and variable loans are commonly priced as prime plus a margin. Mortgages track long-term bond yields instead, which is why they can move even when the Fed does nothing.

Your own rate is then set by the individual lender, based on your credit and the loan itself. The Fed influences the whole ladder; it does not set the rung you stand on.

A fixed rate stays the same for the whole term, so the payment is predictable from day one. A variable rate moves with an underlying benchmark, so the payment can rise or fall.

Variable rates are usually built as index plus margin. The index moves with the market — most US variable lending now references SOFR or the prime rate, after LIBOR was retired in 2023. The margin is fixed in your agreement and does not change.

Fixed costs a little more at the start and removes the risk. Variable starts cheaper and hands you the risk. The honest test is whether you could still afford the payment if the rate rose by two or three points.

Six things do most of the work. Credit score is usually the largest single factor. Whether the loan is secured matters nearly as much: a mortgage or car loan is backed by an asset, so it costs less than an unsecured credit card.

Then term length (longer often means a higher rate), loan size, your debt-to-income ratio, and the market rate at the time you borrow.

The first five are about you and are partly within your control. The sixth is not, which is why the same borrower can be quoted very different rates a year apart.

A great deal, and more than most people expect. Scores run from 300 to 850 on the common FICO scale, and lenders price in bands rather than on a smooth curve, so crossing a boundary can move your rate noticeably.

The score itself is built mostly from payment history and how much of your available credit you are using, with length of history, new applications and credit mix making up the rest. Paying on time and keeping balances well below the limit are the two things that move it most.

You are entitled to your credit reports for free from the three national bureaus. Checking them and disputing errors is the cheapest rate reduction available, because a mistake on a report costs you real money every month.

Yes. In the US, interest from savings accounts, CDs and bonds is generally taxed as ordinary income in the year it is credited, not when you withdraw it. Your bank reports it on a Form 1099-INT.

There are exceptions worth knowing: interest on most municipal bonds is exempt from federal tax, and Treasury interest is exempt from state and local tax. Interest inside a retirement account is not taxed as it accrues.

Sometimes, and far less often than people assume. Mortgage interest on a qualifying home loan is deductible if you itemise. Student loan interest has its own deduction that does not require itemising. Investment interest can be deductible against investment income.

Personal interest is not deductible at all — that covers credit cards, car loans and personal loans. Since the standard deduction was roughly doubled in 2018, most filers do not itemise and so get no benefit from the mortgage deduction either.

There is no single federal cap for most lending. Usury limits are set state by state, and they vary widely, which is why some lenders are based in states with permissive rules.

Two protections are federal. Active-duty service members and their dependents are covered by the Military Lending Act, which caps most consumer credit at a 36% military annual percentage rate. And whatever the rate, the Truth in Lending Act requires it to be disclosed as an APR before you sign.