Compound Interest Calculator

What this calculator tells you

Compound interest means earning interest on interest. Each period, the interest is added to the balance, and the next period's interest is calculated on the larger amount. This calculator shows how a starting sum grows under a fixed annual rate, with the compounding frequency you choose, and the interest earned over the term.

The effect is small in the first few years and large over long periods. It is the reason that starting early, and leaving growth alone, matters so much for savings and investments. The calculator makes this visible by showing the final value and the share of it that came from interest.

How the result is worked out

The future value equals the principal multiplied by one plus the annual rate divided by the number of compounding periods per year, raised to the total number of periods. Annual compounding uses one period a year, while monthly compounding uses twelve and daily compounding uses 365 in this calculator. More frequent compounding gives a slightly higher result at the same stated rate, because interest begins earning interest sooner.

A worked example

Suppose you invest 10,000 at 7% a year, compounded annually, for ten years. The balance at the end is 10,000 multiplied by 1.07 raised to the power of ten, which is about 19,671.51. The interest earned is about 9,671.51. Notice that interest earned in the last year is larger than the interest earned in the first year, because the balance is bigger by then.

Frequency matters less than rate and time

Switching from annual to daily compounding at the same rate makes a difference, but it is usually small compared with changing the rate or the length of the investment. Doubling the term often has a much larger effect than moving from monthly to daily compounding. When comparing savings accounts, the stated rate and the frequency both matter, and the annual percentage yield is the best figure for a like-for-like comparison.

Assumptions and limits

The calculator assumes a fixed rate for the whole term and no additional deposits or withdrawals. Real investments return different amounts in different years, and a fund's return is not guaranteed. A stated savings rate can also change, and a negative return reduces the balance rather than compounding it upward.

Taxes and fees are not included. Tax on interest, dividends or gains, and charges such as account or fund fees, all reduce the growth you actually keep. Inflation reduces what the final sum can buy, so the real value after inflation is lower than the nominal figure shown.

Common mistakes with compound growth

A frequent error is to assume that a high return can be counted on every year. Losses hurt more than gains help, because a fall of 50% needs a rise of 100% to recover. Over long periods, avoiding large losses often matters more than chasing the highest return.

Another mistake is to forget the cost of withdrawals. Taking money out early removes both the capital and the growth it would have produced, so a plan that looks certain on paper can fall short once withdrawals are made.

Using the result

Use the calculator to see the value of a goal in future money, and to compare how much the rate, the frequency and the time each change the outcome. Test a range of rates, rather than a single optimistic figure, and consider the result alongside the risk you are willing to take, since higher assumed returns usually come with higher risk.