Use the Compound Interest Calculator
Project investment growth from a starting balance, recurring monthly contributions, rate, term, and compounding frequency.
Growth on prior growth
Compound interest means each period's growth is added to the balance, so later periods can earn growth on both the original principal and earlier earnings. That differs from simple interest, which calculates each period from the original principal only.
Compounding can apply to savings, loans, and investment models. The direction depends on the context: it can help a saver accumulate value or increase the cost of unpaid debt.
The compound interest formula
For a balance without recurring contributions, the standard formula is A = P(1 + r/n)^(nt). P is principal, r is the annual rate as a decimal, n is compounding periods per year, t is years, and A is the future balance.
For example, $5,000 at 6% compounded monthly for 10 years is 5,000 × (1 + 0.06/12)^120, which is about $9,097 before taxes and fees.
How recurring contributions change the result
A contribution made today has more time to grow than the same contribution made years later. A recurring-contribution calculation treats each deposit as its own cash flow, added on its scheduled date.
Calcora assumes monthly contributions arrive at the end of each month. A beginning-of-month contribution would have one extra month of modeled growth, so the timing assumption should be stated when comparing projections.
Rate, time, and compounding frequency
Time and rate usually have the largest effect because they appear in the exponent. Compounding more often also increases the modeled balance when the stated annual rate is divided across periods, but the difference between monthly and daily compounding is often smaller than the difference between two plausible annual rates.
When modeling investments, a constant return is a simplifying assumption. Actual market returns vary, fees reduce growth, taxes may apply, and inflation changes purchasing power. Test a conservative, middle, and optimistic rate rather than treating one projection as a forecast.
Use projections responsibly
Separate the amount you contribute from the amount attributed to modeled growth. This makes the result easier to interpret and shows how much depends on an uncertain rate assumption.
A calculator can compare scenarios consistently, but it cannot predict returns. For decisions with significant consequences, review fees, taxes, liquidity, risk, and personal circumstances with an appropriately qualified professional.
Questions about how does compound interest work?
Is a higher compounding frequency always better?
For a positive stated nominal rate, more frequent compounding produces slightly more growth, but fees and the actual rate can matter far more.
What happens when the rate is zero?
The balance changes only through contributions or withdrawals; no compound growth is added.
Does compound interest account for inflation?
Not by itself. Compare the modeled return with inflation or calculate a real return when purchasing power matters.