What Is Compound Interest, and How Does This Calculator Work?
Compound interest is interest calculated on both your original principal and on the interest that principal has already earned. Every time interest compounds — daily, monthly, quarterly, or annually — it gets added to your balance, and the next round of interest is calculated on that larger number. Instead of growing by the same dollar amount every period (simple interest), your money grows by a larger dollar amount each time, because the base it's growing from keeps expanding. That's what creates the curved, accelerating growth line you see when you run the calculator above, and it's why financial writers so often describe it as one of the most powerful forces in personal finance.
How to Use the Calculator
- Starting Amount — the lump sum you're depositing or investing today. Enter $0 if you're starting from scratch and building entirely through contributions.
- Annual Interest Rate — the rate your account or investment is expected to earn per year. For a savings account or CD, use the advertised APY. For long-term stock market investing, many planners use a historical long-term average (commonly 7–10%) as an illustration — never a promised return.
- Time Period — how many years you plan to leave the money invested or saved.
- Compound Frequency — how often interest is credited to your balance. Most savings accounts compound daily or monthly; some bonds and older certificates compound annually.
- Monthly Contribution — how much you'll add on an ongoing basis. This calculator assumes contributions are made consistently throughout each period; see our contribution timing guide for how the exact timing changes results.
- Inflation Rate (optional) — used only to calculate the "Inflation-Adjusted Value" result, which restates your future balance in today's purchasing power.
The Compound Interest Formula
A = P (1 + r/n)nt
Where A is the ending balance, P is your starting principal, r is the annual interest rate (as a decimal), n is the number of times interest compounds per year, and t is the number of years. This calculator extends that base formula to also account for your recurring contributions, compounding each one from the period it's added rather than lumping all contributions in at the end — which is why the year-by-year breakdown table shows growth that isn't perfectly linear.
Two Worked Examples
Savings example: Start with $5,000 in a high-yield savings account paying 4.5% APY, compounded monthly, and add $200 every month. After 5 years, the balance grows to roughly $19,690 — about $17,000 of that is money you contributed, and about $2,690 is interest the account paid you, purely from compounding.
Investing example: Start with $10,000 in a diversified index fund, assume an illustrative 8% average annual return compounded monthly, and contribute $300 every month for 25 years. The balance grows to roughly $358,800. Of that, $100,000 is money actually contributed — the remaining ~$258,800 is compound growth. This is an illustration based on an assumed return, not a promise: real market returns vary from year to year, some years are negative, and past performance never guarantees future results.
APY vs. Nominal Interest Rate
The rate advertised on a savings product is sometimes a plain "interest rate" and sometimes an "APY" (Annual Percentage Yield). They aren't always the same number. APY already factors in the effect of compounding over a full year, while a nominal rate does not — so two accounts advertising the same nominal rate but compounding at different frequencies will actually pay slightly different amounts. Read the full breakdown, with a side-by-side conversion table, on our APY vs. Interest Rate page.
Contribution Timing and Inflation
Two assumptions matter more than most people expect. First, when in each period you contribute — depositing at the start of the month instead of the end gives that contribution slightly more time to earn interest, and the difference compounds over decades. Second, inflation quietly erodes the purchasing power of a dollar amount even while the number on your statement keeps climbing. A $500,000 balance in 30 years will not buy what $500,000 buys today — the "Inflation-Adjusted Value" result above, and our dedicated Inflation-Adjusted Growth Calculator, both exist to show you that real-dollar figure alongside the nominal one.
What This Calculator Does Not Account For
- Taxes on interest, dividends, or capital gains (build an after-tax rate into your input if you want to approximate this).
- Account fees, expense ratios, or advisory fees.
- Withdrawals, early-withdrawal penalties, or contribution limits that apply to specific account types.
- Market volatility — this tool assumes a single fixed rate for the entire period, while real investment returns vary year to year.
For the full list of assumptions, rounding rules, and what every result field does and doesn't include, see our Methodology & Assumptions page.
Every calculation on this page draws on the concepts below. Explore the full library — no page here is a dead end.
Frequently Asked Questions
What is compound interest? +
Compound interest means you earn interest on your interest — not just on your original deposit. Over time, this creates exponential growth. The longer your money sits, the faster it grows.
How does compounding frequency affect growth? +
The more frequently interest compounds, the more you earn. Monthly compounding earns slightly more than annual compounding at the same rate. Daily compounding earns the most, though the difference versus monthly is small.
What is the Rule of 72? +
Divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 7% interest, your money doubles in roughly 10.3 years (72 ÷ 7 = 10.3).
Should I include monthly contributions? +
Yes! Regular contributions dramatically accelerate growth. Even small monthly additions ($50–$100) can add tens of thousands of dollars over time because each contribution also earns compound interest.
What does the inflation-adjusted value mean? +
The inflation-adjusted value (also called "real value") shows what your future balance would be worth in today's purchasing power. It accounts for the fact that $10,000 in 20 years will buy less than $10,000 today.
Is this calculator accurate? +
This calculator provides accurate mathematical projections based on a fixed interest rate. Real-world returns vary — stock market returns fluctuate year to year. Use this as a planning tool, not a guarantee.