The concept
What is compound interest?
Compound interest is interest calculated on an initial amount and on interest added during earlier periods. Unlike simple interest, the base used for the calculation can grow over time.
The result depends on every assumption: the starting amount, contribution timing, assumed annual rate, compounding frequency and length of time. A calculator can show how those variables interact; it cannot determine what will happen.
The method
How the calculation works
For a starting principal without recurring contributions, the standard compound-interest formula is:
- A
- future value
- P
- starting principal
- r
- annual rate as a decimal
- n
- compounding periods per year
- t
- time in years
Recurring monthly contributions are calculated as a series of deposits, then added to the compounded starting amount. This calculator assumes each contribution is made at the end of the month.
Worked example
A neutral example
Suppose a starting amount of $10,000 is entered with a $200 monthly contribution, a 5% assumed annual rate and a 10-year period. The calculator applies the chosen compounding frequency, adds the contribution series, and separates the final estimate into the starting amount, total contributions and calculated growth.
This example explains the method. It is not a recommendation and the assumed rate is not a prediction.
Frequently asked
Compound interest questions
Does a higher compounding frequency always make a large difference?+
Not necessarily. The effect depends on the rate, time period and how the quoted rate is defined. Differences may be small for shorter periods or lower rates.
Does this calculator include tax or fees?+
No. It is a simplified mathematical illustration. Taxes, fees and changing rates can materially change real outcomes.
Can the estimated growth be negative?+
Yes. If you enter a negative assumed rate, the calculated value can decline. Contributions may still make the ending balance larger than the starting balance.