What compound interest is
Compound interest is interest calculated not just on your original deposit, but also on the interest you’ve already earned. Each period, the interest you earn is added to your balance and starts earning interest of its own. That’s why it’s often called “interest on interest” — and why money growing at 8% per year doesn’t take 12.5 years to double, but roughly 9. Growth accelerates over time.
This calculator shows exactly how your money grows by combining three forces: your starting deposit, your monthly contributions, and your interest rate. Everything runs in your browser — we never store or upload your numbers.
How to use the calculator
- Initial deposit: the money you start with today (it can be 0 if you’re starting from scratch).
- Monthly contribution: what you plan to add every month.
- Annual interest rate: the expected return of your account or investment — a high-yield savings account, a CD, or an index fund’s long-term average.
- Years and compounding: how long the money stays invested and how often interest is credited.
Open the year-by-year breakdown to spot the crossover point where the interest you earn each year becomes larger than what you contribute — the moment compound interest starts working harder than you do.
The formula, explained
For a single lump sum with no contributions, the future value is:
A = P × (1 + r/n)^(n×t)
where P is the principal, r the annual rate as a decimal, n the number of compounding periods per year (12 for monthly), and t the number of years. When you add monthly contributions, every deposit starts its own compounding chain — this calculator simulates the account month by month, so deposit timing is handled correctly.
Worked example
Say you invest $10,000 at 7% per year, compounded monthly, for 20 years, with no extra deposits:
- Growth factor: (1 + 0.07/12)^240 ≈ 4.0387
- Final balance: 10,000 × 4.0387 ≈ $40,387
- Interest earned: $30,387 — more than three times your original deposit.
With simple interest, the same 20 years would earn just $14,000 ($24,000 total). The extra $16,000+ is the compounding effect.
The rule of 72
A handy mental shortcut: divide 72 by your annual rate to estimate how many years it takes your money to double. At 7%, 72 ÷ 7 ≈ 10.3 years; at 9%, 8 years; at 12%, 6 years. It’s an approximation, but remarkably accurate for rates between 4% and 15%.
Frequently asked questions
What’s the difference between simple and compound interest?
Simple interest is always calculated on the original principal — the base never grows. Compound interest is calculated on principal plus accumulated interest, so the base grows every period. Over decades the gap is enormous, which is why starting early matters more than starting big.
Does compounding frequency matter much?
Less than most people think. $10,000 at 7% for 20 years grows to $40,387 with monthly compounding versus $38,697 with annual compounding. The difference is real but small — time in the market and consistent contributions matter far more.
Is this the same as APY?
Close. APY (annual percentage yield) already includes the effect of intra-year compounding. If your bank quotes an APY, choose yearly compounding here and enter the APY directly; if it quotes a nominal APR compounded monthly, choose monthly.
Is the result guaranteed?
No. This is an educational projection with a constant rate. Real-world returns on funds and investments vary year to year, and taxes and inflation reduce real gains. This is not financial advice.