How this compound interest calculator works
Compound interest is interest earned on interest. With each compounding period, the rate is applied not just to your original deposit but to everything that has accumulated so far, so the balance grows on a curve rather than a straight line. The longer the money stays invested, the more dramatic that curve becomes.
The calculator uses the standard formula A = P(1 + r/n)nt, where P is the initial principal, r is the annual interest rate written as a decimal, n is the number of compounding periods per year, and t is the number of years. When you add a recurring contribution, the tool also computes the future value of that stream of deposits using PMT × [((1 + i)N − 1) / i], where i = r/n is the periodic rate and N = n × t is the total number of periods.
Assumption: contributions are converted to the compounding schedule. A monthly contribution is spread evenly across the periods in each year (for example, a $100 monthly deposit becomes $1,200 per year, divided by the number of compounding periods), and deposits are treated as ordinary annuity payments made at the end of each period. This keeps the contribution total accurate regardless of the frequency you choose.
Reference note: this is an estimate, not financial advice. It assumes a constant rate and ignores taxes, fees and inflation, so real-world results will differ.
Frequently asked questions
- What is compound interest?
- Compound interest is interest calculated on both your original principal and the interest already added in previous periods. Because each period's interest earns interest of its own, the balance grows faster over time than with simple interest.
- How is compound interest calculated?
- The core formula is A = P(1 + r/n)nt, where P is the principal, r is the annual rate as a decimal, n is the compounding periods per year and t is the number of years. A is the final balance. Regular deposits add the future value of those contributions on top.
- How does compounding frequency matter?
- The more often interest is compounded, the more often interest earns interest, so the final balance is slightly higher. Moving from annual to monthly to daily compounding raises the effective yield, though the gap shrinks as the rate gets smaller.
- What is the rule of 72?
- The rule of 72 estimates how long money takes to double: divide 72 by the annual percentage rate. At 6% a balance doubles in roughly 72 / 6 = 12 years. It is an approximation that works best for rates between about 4% and 12%.
- What is the difference between simple and compound interest?
- Simple interest is charged only on the original principal, so it grows in a straight line. Compound interest is charged on the principal plus accumulated interest, so it grows on a curve and produces a larger balance over long periods.
- Is this calculator financial advice?
- No. It is an educational estimate based on the numbers you enter and assumes a constant rate with no taxes or fees. Real returns vary and are not guaranteed, so consult a qualified professional for decisions about your money.