What is compound interest?
Compound interest means you earn interest on your original money and on the interest it has already earned. Put $1,000 in an account paying 10% a year and you have $1,100 after the first year. In the second year you earn 10% on $1,100, not on $1,000, so you finish with $1,210. That extra $10 is interest on interest, and over long periods it becomes the largest part of your balance.
Simple interest, by contrast, is only ever paid on the starting amount. The longer the time frame, the bigger the gap between the two.
How to use this calculator
- Initial deposit: the amount you start with today. Enter 0 if you are starting from nothing.
- Monthly contribution: how much you plan to add every month.
- Annual interest rate: the yearly rate or expected average return, as a percentage.
- Years: how long the money stays invested.
- Compounding: how often interest is added to the balance. Savings accounts often compound daily or monthly.
The result shows your final balance, how much of it came from your own deposits, and how much came from interest. The chart and table show how the balance builds each year.
The compound interest formula
For a single deposit, the future value is:
Here A is the final amount, P the starting deposit, r the yearly rate as a decimal (5% = 0.05), n the number of times interest is added each year, and t the number of years.
Regular monthly deposits are added with the future value of an annuity formula, PMT × ((1 + i)N − 1) ÷ i, where i is the monthly rate and N the number of months. This calculator runs the numbers month by month, which gives the same answer and also produces the yearly table.
Worked example
Say you start with $10,000, add $100 every month, and earn 5% a year compounded monthly for 10 years.
- The $10,000 grows to $16,470.09.
- The 120 monthly deposits of $100 grow to $15,528.23.
- Your total balance is $31,998.32, of which $22,000 is your own money and $9,998.32 is interest.
Does compounding frequency matter?
Yes, but less than most people expect. Here is $10,000 at 5% for 10 years with no extra deposits:
| Compounding | Final balance |
|---|---|
| Yearly | $16,288.95 |
| Quarterly | $16,436.19 |
| Monthly | $16,470.09 |
| Daily | $16,486.65 |
Moving from yearly to daily compounding adds about $200 here. The interest rate and the number of years have a far bigger effect.
Why starting early matters most
Time is the strongest lever in compounding. Saving $200 a month at a 7% average return for 40 years grows to roughly $525,000 from $96,000 of deposits. Start 10 years later and save for 30 years instead, and you end with about $244,000 from $72,000 of deposits. Ten fewer years of saving cuts the result by more than half.
Tips for realistic estimates
- Use a conservative rate. High-yield savings accounts and CDs pay a fixed or variable rate, while stock returns change from year to year.
- Fees reduce your effective return. A fund charging 1% a year turns a 7% return into roughly 6%.
- Remember inflation. To see the result in today's money, lower the rate by your expected inflation rate.
- Taxes can apply to interest each year unless the money is in a tax-advantaged account.
Last reviewed October 2026.