What compound interest is
With simple interest, you earn interest only on the money you deposited. With compound interest, the interest you've already earned is added to your balance, and from then on it earns interest too. Over long periods, that snowball effect is what makes saving early so powerful.
Take 1,000 at 10% a year. With simple interest you earn 100 every year, so after 3 years you have 1,300. With yearly compounding you earn 100, then 110, then 121, ending with 1,331. The gap is small at first and grows every year.
The compound interest formula
For a single deposit with no additions:
A = P × (1 + r ÷ n)n × t
- A is the final amount.
- P is the starting amount.
- r is the yearly interest rate as a decimal (6% = 0.06).
- n is how many times a year interest is added (12 for monthly).
- t is the number of years.
When you also add money every month, the calculator goes month by month. It adds that month's interest to the balance, then adds your deposit (deposits are made at the end of each month). If interest is added on a different schedule than monthly, it uses the equivalent monthly rate, so the result matches the compounding you chose.
Worked example
You put in 5,000 at 6%, compounded monthly, for 10 years, with no extra deposits.
A = 5,000 × (1 + 0.06 ÷ 12)120 = 5,000 × 1.8194 = 9,096.98.
Add 200 a month and the balance after 10 years is about 41,872. You put in 29,000; the other 12,872 is interest.
Why time matters more than rate
Two savers each put 200 a month into an account earning 7% a year, compounded monthly:
| Saver | Saves for | Total put in | Balance at 65 |
|---|---|---|---|
| Starts at 25 | 40 years | 96,000 | ≈ 525,000 |
| Starts at 35 | 30 years | 72,000 | ≈ 244,000 |
The early starter puts in only a third more money but ends with more than twice as much. The extra decade lets interest compound on a bigger balance.
The rule of 72
A quick mental estimate: divide 72 by the yearly interest rate to find roughly how many years it takes money to double. At 6% it's about 12 years; at 9%, about 8 years. It works best for rates between 4% and 12%.
Keep in mind: savings accounts have fixed or slowly changing rates, but investment returns go up and down. A steady 6% or 7% a year is an assumption, not a promise. Taxes, fees and inflation also reduce real growth. This calculator is for planning and learning, not financial advice.
Frequently asked questions
Does daily compounding make a big difference compared with monthly?
Very little. At 6% a year, monthly compounding gives an effective rate of 6.17% and daily gives 6.18%. How often interest is added matters much less than the rate and how long you save.
What's the difference between APR and APY?
APR is the stated yearly rate without compounding. APY (annual percentage yield) includes the effect of compounding, so it's the real yearly growth. When comparing savings accounts, compare APY.
Can I use this for a negative interest rate or a loan?
You can enter a negative rate to model a shrinking balance. For loans you repay in equal installments, the loan EMI calculator is the better tool.
Last reviewed November 2026.