About the Compound Interest Calculator
Compound interest is interest that earns interest: each period’s gain gets added to the balance, and the next period’s gain is computed on that bigger number. Over short horizons it looks like a rounding error; over decades it becomes the dominant term in your result.
This calculator separates the three sources of your ending balance — what you deposited, what you contributed, and what the compounding produced — so the “free money” part of the story is actually visible instead of mystical.
The formula behind it
For an initial deposit growing at periodic rate i:
FV = P × (1+i)^n • contributions add: PMT × ((1+i)^n − 1) / iP = initial deposit, PMT = contribution per compounding period, i = periodic rate (annual rate / frequency), n = total number of compounding periods. Monthly contributions are folded into the schedule at the compounding frequency chosen.
Worked example
Defaults — $5,000 invested now, $200 added monthly, 7%/yr compounded monthly, 10 years:
- Your own out-of-pocket: $5,000 + $24,000 of contributions = $29,000.
- The $5,000 seed alone grows to about $10,045.
- The monthly contributions compound along the way, adding roughly $34,620 to the pot.
Takeaway: Final value ≈ $44,665 — about $15,665 of pure compounding gain on a $29,000 total invested at a 7% pace.
What moves the result
- Time — the most powerful variable: at 7%, money roughly doubles every decade.
- Monthly contribution — by contributing regularly, you capture a range of prices and prices the schedule ahead.
- Rate — a 1% higher return compounds to a dramatically larger pot by year 20+.
- Frequency — more frequent compounding is marginally better; the APY of 7% compounded monthly is about 7.23%.
Practical tips
- Set the contribution to an automatic monthly transfer — compounding works best when it never depends on a decision.
- Compare savings options by APY, not rate: the same 7% nominal rate compounds differently monthly vs annually.
- If you model more than a decade, be honest about rate: use a moderate number (6–8%) rather than single bull-market samples.
- Run the same money at 5% and 9% to see your risk band, not just the optimistic midpoint.
- Keep the initial deposit in the model even if small: the point is to see how much of your final sum the seed itself produced.
Frequently asked questions
Compounding frequency — does it matter much?
At typical rates, going from annual to monthly compounding adds only a few tenths of a percent per year. Over decades, though, it shows up in thousands of dollars.
What return should I use for a stock portfolio?
Historical US equities averaged about 10% nominal before fees/taxes; 6–8% is a prudent planning number for diversified portfolios over long horizons.
Is this calculator good for savings accounts too?
Yes — it handles any instrument with a steady rate at the chosen compounding frequency; just enter the APY-quality rate your bank advertises.