What is compound interest?
Compound interest is interest calculated on both your original deposit and the interest already added to it. Each time interest is credited, the balance gets a little bigger, so the next interest payment is bigger too. Over long periods this snowball effect can account for most of an investment's final value, which is why starting early matters more than almost anything else.
How often interest is credited, the compounding frequency, also makes a difference. Monthly compounding grows money slightly faster than yearly compounding at the same quoted rate. The calculator shows this as the effective annual rate, or APY.
How to use the compound interest calculator
- Enter your initial deposit. Use 0 if you are starting from nothing.
- Add a monthly contribution if you plan to save regularly.
- Enter the expected annual interest rate or return, and the number of years.
- Choose how often interest compounds and whether you contribute at the start or end of each month.
- Read the future value, your total contributions and the interest earned, and open the yearly table to watch the balance grow.
The compound interest formula
For a single deposit with no further contributions:
A = P × (1 + r ÷ n)n × t
P is the starting amount, r the annual rate as a decimal, n the number of compounding periods per year and t the number of years. Monthly contributions are added each month and grow at the equivalent monthly rate, (1 + r ÷ n)n ÷ 12 − 1, so every compounding option is handled consistently.
Examples
Lump sum: 10,000 invested at 5% compounded yearly for 10 years grows to 16,288.95. With monthly compounding it reaches 16,470.09, about 181 more for the same headline rate.
Regular saving: putting away 100 a month at 6% compounded monthly for 10 years gives 16,387.93. You contributed 12,000, so 4,387.93 came from interest. Double the time to 20 years and the balance rises to about 46,204, with interest now larger than your deposits.
More worked examples
Euro savings plan: €5,000 plus €100 a month at 4% compounded monthly for 10 years grows to about €22,179. You put in €17,000, so about €5,179 is interest.
Long-term investing: a single $1,000 at an average 8% a year, compounded monthly, becomes roughly $10,936 after 30 years, more than ten times the original amount.
Common mistakes to avoid
- Confusing APR and APY. The effective annual rate (APY) is higher than the quoted rate when interest compounds more than once a year.
- Treating investment returns as guaranteed. Use a cautious average rate for shares and funds.
- Forgetting inflation and tax. Results are nominal. To plan a target instead, use the savings goal calculator.
Sources and methodology
The calculations on this page follow these published standards and references. The code is covered by automated tests against known values.