How it works
Compound interest means you earn interest on your interest. Each period, the interest is added to the balance, so the next period's interest is calculated on a larger amount. The more often interest compounds, and the longer you leave it, the faster the balance grows.
The difference between compounding monthly and yearly looks small in year one, but over decades it is large — that is why starting early matters more than the exact rate.
Formula
A = P × (1 + r/n)^(n×t), where P is the principal, r the annual rate, n the number of compounding periods per year, and t the years.
What each input means
- Principal (starting amount): The amount you invest at the start.
- Annual interest rate: The annual interest rate, as a percentage.
- Years invested: How long the money stays invested.
- Compounding frequency: How often interest is added to the balance. Monthly is the most common for savings accounts.
Worked example: $10,000 at 5% for 10 years
- Principal: $10,000, annual rate: 5%, term: 10 years
- Compounded monthly: $16,470.09 (interest earned $6,470.09)
- Compounded yearly: $16,288.95
- Monthly compounding earns $181.14 more than yearly compounding on the same money.
Frequently asked questions
What is the difference between compound and simple interest?
Simple interest pays only on the original amount. Compound interest pays on the amount plus all interest earned so far, so the balance grows faster every year.
Does the frequency matter much?
Yes, but less than the rate and the time. On $10,000 at 5% for 10 years, monthly compounding earns $181 more than yearly compounding — real money, but the 10 years matter far more than the frequency.
Is the result guaranteed?
No. This assumes a fixed rate for the whole period. Real investments change rate, and inflation reduces what the future amount can buy.
What if I add money every month?
Regular contributions grow the result a lot. This calculator covers a single lump sum; a version with monthly contributions is coming soon.