Interest Difference Calculator
Even a small rate gap changes what you pay or earn more than most people expect. Enter one principal, two interest rates, and the time period for each: this calculator shows the total interest under each rate, the exact dollar difference, which option is better, and the rate gap in basis points. A second mode compares the same two rates with annual compounding for savings and investments.
Simple-interest comparison for illustration. Real loans amortize, so compare APR and total cost on actual offers before borrowing. Not financial advice.
The interest difference formula
Interest Difference = |(P × r1 × n1) − (P × r2 × n2)|, where P is the principal, r1 and r2 are the two rates as decimals, and n1 and n2 are the time periods in years. Each side is the simple interest under that rate. The rate gap in basis points is (r2 − r1) × 100, since one percentage point equals 100 basis points. In compound mode the tool instead compares P × ((1 + r)^n − 1) for each rate with annual compounding.
How to use the calculator
Enter the principal, both annual rates, and each time period, then set the time unit to years or months. The simple interest mode matches how this comparison is defined across the standard references. Switch to compound mode when you are comparing savings accounts or investments where interest earns interest. Copy my results keeps the full comparison for your notes.
Worked example, checked against the tool
Invest $10,000 for 5 years. Bank A pays 4.5%, Bank B pays 5.0%.
Interest A = $10,000 × 0.045 × 5 = $2,250. Interest B = $10,000 × 0.05 × 5 = $2,500. Difference = $250, and the rate gap is 50 basis points. With annual compounding instead: A earns $2,461.82, B earns $2,762.82, a $301.00 difference. The calculator returns exactly these figures.
What competing calculators miss
One widely used interest difference page labels its time input "number of payments" and its own worked example multiplies a $200,000 mortgage by 360 payments to produce $28.8 million of interest, a figure no borrower would ever see. The time unit is the whole ballgame, and this page makes it explicit with a years/months selector so that mistake cannot happen. Beyond that, no competing tool shows the rate gap in basis points, none offer a compound-interest view, and none let you copy or share the comparison.
Frequently asked questions
How do you calculate the difference between two interest rates?
Compute the simple interest under each rate on the same principal (P × r × n) and take the absolute difference. This calculator does both sides and the subtraction for you.
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal; the APR adds fees and spreads the total cost over a year. When comparing loan offers, the APR is usually the fairer comparison.
What are basis points?
One basis point is one-hundredth of a percent. A move from 4.50% to 5.00% is 50 basis points. Finance uses basis points to avoid ambiguity between percent changes and percentage-point changes.
Should I use simple or compound mode?
Use simple mode for the standard rate-difference comparison and for short-term loans. Use compound mode for savings and investments held multiple years, where earned interest starts earning its own interest.
Does the time unit really matter that much?
Enormously. Entering 360 monthly payments as 360 years multiplies the answer 12-fold. Set the unit selector to months whenever your periods are monthly and the tool converts correctly.
Which loan is better if the difference is small?
The lower total interest usually wins, but check the monthly payment, fees, and flexibility too. A slightly higher rate with no origination fee can beat a lower rate loaded with fees.
How does refinancing show up here?
Enter your current loan rate and remaining term as option 1 and the refinance offer as option 2. The difference is your gross interest saving; subtract closing costs to get the net benefit.
Can I compare different time periods?
Yes. The two time fields are independent, so you can compare a 5-year loan at one rate against a 7-year loan at another and see the true interest difference.
Why is the compound difference bigger than the simple difference?
Compounding grows the base every year, and the higher rate compounds faster, so the gap between the two widens over time. The longer the term, the bigger the divergence.
Is this the same as an amortization calculation?
No. Amortizing loans pay interest on a shrinking balance, so their total interest is lower than P × r × n suggests. Use this tool for rate comparison, and an amortization schedule for exact loan costs.