What compound interest means
With simple interest you earn only on the money you put in. With compound interest, the interest you earn is added to your balance, and from then on it earns interest too. The effect is small in the first few years and large later on, which is why time matters more than almost anything else. See simple vs compound interest for side-by-side examples.
The compound interest formula
For a single deposit with no further contributions:
For example, $10,000 at 8% compounded once a year for 9 years grows to $10,000 × 1.089 = $19,990 — almost exactly double, which is what the Rule of 72 predicts (72 ÷ 8 = 9 years).
When you also add money every month, this calculator works month by month: it applies one month’s worth of interest at the rate equivalent to your chosen compounding frequency, then adds your contribution.
Worked example
Start with $10,000, add $200 a month, and earn 7% a year compounded monthly. After 10 years:
- You have contributed $34,000 ($10,000 + 120 × $200).
- Your balance is $54,713.58.
- So $20,713.58 — about 38% of the balance — is interest.
Does compounding frequency matter?
Less than most people think. Here is the same example with each compounding option:
| Compounding | Balance after 10 years |
|---|---|
| Annually | $53,881.86 |
| Quarterly | $54,556.00 |
| Monthly | $54,713.58 |
| Daily | $54,790.85 |
Going from annual to daily compounding adds about $900 here. The rate you earn and the number of years you stay invested make a far bigger difference. When comparing savings accounts, look at the APY (annual percentage yield), which already includes compounding — 7% compounded monthly is an APY of 7.23%. More in APY vs APR.
Time is the biggest lever
Two people each save $300 a month at 7% until age 65. One starts at 25, the other at 35:
| Start age | Total contributed | Balance at 65 |
|---|---|---|
| 25 | $144,000 | $787,444 |
| 35 | $108,000 | $365,991 |
Starting ten years earlier means contributing $36,000 more, yet the final balance is more than twice as large — because those early dollars have an extra decade to compound.
Keep your assumptions realistic
- Returns vary. Savings accounts pay a stated rate; investments like stock funds go up and down, and past averages are not guaranteed.
- Inflation reduces what your future balance can buy. To see results in today’s money, subtract expected inflation from your rate, or use the inflation calculator.
- Fees and taxes come out of your return. A 1% yearly fee on a 7% return leaves 6%, which over decades is a large difference.
Frequently asked questions
Are contributions added at the start or end of each month?
At the end. Contributions made at the start of each month would earn one extra month of interest each, giving a slightly higher result.
What rate should I use?
For a savings account or certificate of deposit, use its APY. For long-term investments, many people test a cautious rate and an optimistic one to see a range rather than relying on a single number.
How do I work out how much to save for a goal?
Use the savings goal calculator: enter the target and the date, and it tells you the monthly amount needed.
Can I save different scenarios?
Members can save any calculation — a cautious and an optimistic version, for example — and reopen them later. The calculator is free for everyone. See membership.
Results are estimates for educational purposes and are not financial or investment advice. See our disclaimer.