Compound interest is what happens when the interest you earn starts earning interest of its own. Over long enough timeframes, that snowball effect can add up to far more than the amount you originally put in — this calculator shows exactly how much, based on your principal, rate, term, and how often the interest compounds.
The formula
Where P is your principal (starting amount), r is the annual interest rate as a decimal, n is how many times per year interest compounds, and t is the number of years. A is the final amount, and subtracting P from A gives you the interest earned.
Worked example: $5,000 deposited at 6% annual interest, compounded monthly, for 10 years: A = 5,000 × (1 + 0.06/12)^(12×10) = 5,000 × 1.005^120 ≈ $9,096.98 — that's $4,096.98 in interest alone, without adding another dollar.
Worked examples
| Principal | Rate | Compounding | Years | Future value |
|---|---|---|---|---|
| $1,000 | 5% | Annually | 5 | $1,276.28 |
| $10,000 | 4% | Monthly | 20 | $22,225.82 |
| $2,000 | 8% | Daily | 3 | $2,542.43 |
| $5,000 | 6% | Quarterly | 10 | $9,070.09 |
Why compounding frequency matters
At the same stated annual rate, more frequent compounding always produces a slightly higher return — because each compounding period locks in interest that then starts earning its own interest sooner. The gap between annual and daily compounding is usually small at short terms and modest rates, but it widens the longer your money sits and the higher the rate.
Notes on this calculator
This calculator projects a single lump-sum deposit with no further contributions. If you're planning to add money on a regular schedule — a monthly transfer into savings or a retirement account, for example — use the Retirement Savings Estimator instead, which factors ongoing contributions into the projection.
Tips
- Starting earlier matters more than contributing more — a longer time horizon lets compounding do more of the work for you.
- Compare accounts by their stated annual rate and compounding frequency — a lower rate compounded more often can sometimes outperform a higher rate compounded less often.
Frequently asked questions
What is the compound interest formula?
A = P(1 + r/n)^(nt), where P is the principal, r is the annual interest rate as a decimal, n is the number of times interest compounds per year, and t is the number of years.
Does compounding frequency really make a difference?
Yes. More frequent compounding means interest starts earning interest sooner, so daily or monthly compounding will always produce a slightly higher return than annual compounding at the same stated rate.
Does this calculator include regular contributions?
No — this calculator projects a single lump-sum deposit. If you're adding money regularly, use the Retirement Savings Estimator instead, which accounts for ongoing monthly contributions.
References
- Consumer Financial Protection Bureau — General guidance on saving and compound growth