Compound Interest Calculator
Calculate compound interest with regular contributions, see year-by-year growth, and compare compounding frequencies.
Investment details
Updates as you typeGrowth over time
Contributions + interest, stackedYear-by-year schedule
| Year | Contributions | Interest | Balance | Composition |
|---|
Formula
- A
- Future value of the investment
- P
- Initial deposit (principal)
- PMT
- Regular contribution amount
- r
- Annual interest rate (as a decimal)
- n
- Number of compounding periods per year
- t
- Number of years
- r/n = —
- nt = —
- (1 + r/n)nt = —
- Growth of principal = —
- Growth of contributions = —
- Future value A = —
The contribution term assumes regular monthly deposits, converted to the chosen compounding cadence. More frequent compounding lifts the effective annual rate slightly — the gap between monthly and daily is small at ordinary rates.
Examples
How It Works
The formula has two parts. The first part, P(1 + r/n)nt, calculates the future value of your initial deposit. The second part handles regular contributions, converting monthly payments into per-compounding-period amounts and computing their future value using the annuity formula.
Compounding frequency matters: the more often interest compounds, the more you earn. Daily compounding produces slightly more than monthly, which beats quarterly, and so on. The effective annual rate (EAR) tells you the true annual return after accounting for compounding — it's always equal to or higher than the stated (nominal) rate.
The key to building wealth with compound interest is time. Starting early — even with smaller amounts — can outperform starting later with larger contributions. A $200/month contribution at 7% annual return grows to about $116,000 in 20 years but over $480,000 in 40 years, despite only doubling the total contributions.
Tips & Best Practices
Frequently Asked Questions
What is compound interest?
Compound interest is interest earned on both the original principal and previously accumulated interest. If you have $1,000 at 10% annual interest, you earn $100 the first year. The second year you earn interest on $1,100, giving you $110 — and this acceleration continues each year.
How does compounding frequency affect returns?
More frequent compounding produces slightly higher returns because interest starts earning its own interest sooner. At 7% annual rate, $10,000 grows to $19,672 with annual compounding over 10 years, but $20,097 with daily compounding — a $425 difference. The effect is more pronounced at higher rates and longer periods.
What is the effective annual rate (EAR)?
The effective annual rate is the true annual return after accounting for compounding. A 7% nominal rate compounded monthly gives an EAR of about 7.23%. The EAR lets you fairly compare investments with different compounding frequencies.
How much should I save for retirement?
A common guideline is to save 15% of your gross income for retirement, starting as early as possible. With compound interest, starting at age 25 with $500/month at 7% gives you about $1.2 million by age 65. Waiting until 35 with the same contributions yields about $567,000 — less than half.
What is the difference between compound and simple interest?
Simple interest is calculated only on the original principal: $10,000 at 5% earns $500 every year, totaling $15,000 after 10 years. Compound interest earns on accumulated interest too, growing the same $10,000 to $16,289 — an extra $1,289 from interest on interest.
Does this calculator account for taxes and inflation?
This calculator shows nominal (pre-tax, pre-inflation) returns. Real returns are lower after taxes and inflation. For a rough estimate, subtract 2-3% for inflation from your expected return rate, and consult a tax professional about the tax treatment of your specific investment accounts.