How the Compound Interest Calculator Works
Compound interest is interest earned on your interest. Each period, what you've earned is added to your balance, and the next period's interest is calculated on that bigger number. Add regular contributions and give it time, and growth starts to snowball.
The formula
Lump sum: A = P × (1 + r ÷ n)n × t
P = starting amount · r = annual rate · n = compounds per year · t = years
Regular contributions make the formula messy, so this calculator works month by month instead. It converts your rate and compounding frequency into an equivalent monthly growth rate, adds your contribution at the start or end of each month, and raises the contribution once a year if you set a step-up.
Monthly growth = (1 + r ÷ n)n ÷ 12 − 1
Today's money = final balance ÷ (1 + inflation)years
The three levers that matter most
- Time. The longest-invested money does the most work — that's why the cost-of-waiting panel moves so much.
- Rate. A couple of percentage points, held for decades, can double your final balance.
- Contributions. Steady additions, raised a little each year, build the base that interest grows on.
Compounding frequency matters too, but far less. Read the full walk-through in How Compound Interest Works, try the SIP Calculator for mutual fund investing, or see when compounding could make work optional with the FIRE Calculator.
It works against you too
Credit card balances and loans compound in the lender's favour, often at much higher rates than any savings account pays. Clearing high-interest debt is usually the best "return" available — the Debt Payoff Planner shows how fast you could do it.
Frequently Asked Questions
How is compound interest calculated?
For a single lump sum, the formula is A = P × (1 + r ÷ n)^(n × t), where P is the starting amount, r is the annual interest rate as a decimal, n is how many times interest compounds per year and t is the number of years. With regular contributions, each deposit compounds from the date it is added. This calculator works month by month so it can handle contributions, yearly step-ups and any compounding frequency together.
Does compounding frequency make a big difference?
Less than most people think. Moving from yearly to monthly compounding adds a little extra, and daily compounding adds only slightly more than monthly. At 7% a year on 10,000 over 20 years, yearly compounding gives about 38,700 and monthly about 40,400 — daily adds only around 160 more. Your interest rate, how much you add and how long you stay invested matter far more.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long money takes to double: divide 72 by the annual interest rate. At 6% money doubles in about 12 years; at 9%, about 8 years; at 12%, about 6 years. It works best for rates between about 4% and 15%, and the calculator shows both the shortcut and the exact doubling time.
How much does waiting to start investing cost?
Often more than the money you would have put in. Because the earliest contributions compound the longest, delaying by five or ten years can cut your final balance by a third or more, even if you invest the same monthly amount afterwards. The calculator's cost-of-waiting panel shows the difference for your own numbers.
What interest rate should I use?
Use a rate that matches where the money will actually sit. Savings accounts and fixed deposits pay a known rate. Diversified stock market investments have historically returned more on average over long periods, but with ups and downs along the way and no guarantee. Try a cautious figure and an optimistic one to see the range — and remember that inflation reduces what your future balance will buy.
Disclaimer: This calculator is an educational tool. It assumes a constant rate of return and does not account for taxes, fees or market ups and downs. It is not financial advice — consider speaking with a qualified financial adviser before making investment decisions.