What compound interest means
Simple interest pays a percentage of your original amount. Compound interest pays a percentage of your original amount plus all the interest already earned, so the balance grows faster each period. With 10,000 at 5% compounded yearly, you earn 500 in year one, then 525 in year two, because the second year's interest is calculated on 10,500. Over long periods the difference becomes large, which is why starting early matters more than most people expect.
The formula
For a single deposit the future value is P × (1 + r/n)^(n × t), where P is the principal, r the annual rate as a decimal, n the number of compounding periods per year and t the number of years. Ten thousand at 5% compounded monthly for 10 years grows to 10,000 × (1 + 0.05/12)^120 = 16,470.09. This calculator also supports regular monthly deposits. It converts your annual rate into an equivalent monthly growth factor, applies it each month and adds your contribution at the end of the month, then reports the balance each year in the table.
What the inputs change
- Rate: the single biggest driver over long periods. A 1% difference compounds noticeably over decades.
- Time: doubling the years more than doubles the interest because earlier interest keeps earning more interest.
- Monthly contribution: often matters more than the starting amount for people who save steadily.
- Compounding frequency: monthly or daily compounding gives only slightly more than yearly. The rate matters far more than the frequency.
Realistic use and limits
The result assumes a constant rate, which real investments do not offer. Stock market returns vary year to year and can be negative, while savings account rates change with central bank policy. The calculator ignores taxes, fees and inflation. To judge buying power, subtract your expected inflation rate from the interest rate and run the calculation again with that lower "real" rate. Treat the output as an illustration of how compounding works and not as a forecast or financial advice.
Privacy
All the arithmetic is done in your browser. The figures you enter are not stored or transmitted.