How to Use the Compound Interest Calculator
- Enter your starting balance and the amount you add each month.
- Enter the annual interest rate and the number of years.
- Choose how often interest compounds and whether you contribute at the start or end of each month.
- Press Calculate.
- Use the yearly table to see when growth overtakes your contributions.
Formula
Effective monthly rate = (1 + r ÷ n)^(n ÷ 12) − 1 Each month: balance = balance × (1 + monthly rate) + contribution Lump-sum shortcut: A = P × (1 + r ÷ n)^(n × t) APY = (1 + r ÷ n)^n − 1
Example Calculation
Start with $10,000 and add $500 a month at 7% compounded monthly for 20 years. You contribute $130,000 in total and the balance reaches about $300,851, meaning roughly $170,851 is interest. The effective annual yield is about 7.23%.
What Is Compound Interest?
Compound interest is interest calculated on both the original principal and the interest already added. Each period the base grows, so the next period’s interest is larger. Simple interest, by contrast, is calculated only on the original principal.
How Compounding Works
Imagine $1,000 at 10% a year. After one year you have $1,100. In year two, interest is earned on $1,100, not $1,000, giving $1,210. Over decades the gap versus simple interest becomes dramatic, because each year’s growth joins the base that earns future growth.
Factors That Affect the Result
- Time: starting earlier often matters more than saving more later.
- Rate: small differences in rate compound into large differences in outcome.
- Contributions: regular deposits increase the base that compounds.
- Frequency: more frequent compounding gives a modest boost.
Tips
- Automate contributions so you invest consistently.
- Run a low, medium and high return scenario instead of a single guess.
- Keep fees low, since they compound against you too.
Common Mistakes
- Assuming a constant high return every year.
- Forgetting that inflation reduces purchasing power.
- Withdrawing early and losing the compounding years.
Read how compound interest works, then see inflation and fees with the investment calculator.