The compound interest formula
Without regular deposits, compound interest follows one formula:
A = P × (1 + r ÷ n)n × t
A is the final amount, P the starting amount, r the yearly rate as a decimal, n the number of times interest is added per year, and t the number of years.
Once you add monthly deposits, each deposit grows for a different length of time. The calculator handles this by working through your savings month by month, adding interest at the rate that matches your compounding choice, then adding the deposit at the end of each month.
Worked example
Put 10,000 into an account paying 7% a year, compounded monthly, and add 200 every month for 20 years. You deposit 58,000 in total. The balance grows to about 144,600, so roughly 86,600 of it is interest. In the last few years, the interest earned each year is larger than everything you deposit.
Why time matters more than rate
Compounding speeds up the longer it runs. Starting ten years earlier often does more for your final balance than finding a slightly higher rate. Try changing the years in the calculator and watch how the interest part of the chart grows.
The rule of 72
To estimate how long money takes to double, divide 72 by the yearly interest rate. At 6%, it takes about 12 years. At 9%, about 8 years. The rule is a shortcut and works best for rates between 4% and 12%.
How compounding frequency changes the result
The more often interest is added, the faster the balance grows, but the effect is small. 10,000 at 5% for 10 years becomes about 16,289 with yearly compounding and about 16,487 with daily compounding. The rate itself and the time you stay invested matter far more.
Things this calculator doesn't include
It doesn't subtract tax on interest, account fees or inflation. Investment returns are also not fixed, so a 7% yearly figure is an average, not a promise. This page is for learning and planning, not financial advice.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is paid only on the original amount. Compound interest is also paid on interest you have already earned.
Does monthly compounding make a big difference?
Only a small one. At 5% a year, monthly compounding gives an effective yearly rate of about 5.12%.
What is APY?
Annual percentage yield is the yearly rate after compounding is included. It lets you compare accounts that compound at different frequencies.
When are deposits added?
Deposits are added at the end of each month, after that month's interest.
Can I use this for loans?
It shows how a balance grows. For loan repayments, use the mortgage calculator, which works out fixed monthly payments.
Last reviewed on by the Dailycaltor team.