Compound Interest
Calculate compound interest with monthly contributions. See how your money grows over time.
Simple interest rewards only your original deposit. Compound interest also rewards the interest you've already earned, so the balance snowballs: more interest, on more interest, every month.
Change any input below and watch the 30-year outcome move. Most people are surprised by how much the starting date matters compared to the rate.
How compound interest works
Each period you earn interest on the principal. With compound interest, that interest is added to the balance and the next period's interest is calculated on the new, larger balance. Keep that going month after month and the curve stops being a line and starts being a hockey stick.
Three levers control the outcome: principal (how much you start with), rate (the annual return), and time (how long you leave it alone). Time is by far the strongest. Doubling your horizon beats doubling your contribution.
This calculator compounds monthly with contributions at the end of each month, the convention for most savings accounts and retirement plans. Daily or quarterly compounding shifts the final number by a few percent — same order of magnitude.
A = P·(1+r/n)^(n·t) + PMT·[((1+r/n)^(n·t) − 1)/(r/n)]
- A
- Final balance
- P
- Initial principal
- PMT
- Monthly contribution
- r
- Annual interest rate (decimal)
- n
- Compounding periods per year (12 for monthly)
- t
- Time in years
Practical examples
Starting early
Setup: You deposit $10,000 at 8% annual return, no additional contributions, for 30 years.
$10,000 × (1 + 0.08/12)^(12×30) ≈ $109,357
Takeaway: You multiplied your money by 10, without adding a cent. Waiting 10 years to start roughly halves the final balance. This is the compounding equivalent of 'you can't catch up later.'
Why contributions matter more than rate at first
Setup: Starting from $0, you contribute $500/month at 7% for 20 years.
Total contributed: $120,000. Final balance: ≈ $260,463. Interest earned: ≈ $140,463.
Takeaway: For the first decade, your own contributions drive most of the growth. After that, interest takes over. The longer you wait to start, the more work your rate has to do.
Rate vs. time trade-off
Setup: Option A: $500/month at 6% for 30 years. Option B: $500/month at 9% for 20 years.
Option A: ≈ $502,257. Option B: ≈ $334,182.
Takeaway: Ten extra years at a lower rate beat higher returns over a shorter window. Time usually wins.
Practical tips
- Automate. Set up a transfer on payday. You won't miss money you never see in your checking account.
- Don't chase rate. Anything advertising much over 12% annual in a stable market is hiding risk somewhere. A reliable 7–8% over decades beats a 15% shot that eventually blows up.
- Watch the fees. A 1% annual fee over 30 years can eat a quarter of your final balance. Low-cost index funds or ETFs where possible.
- Think in real terms. Inflation quietly taxes everything. A 7% nominal return with 3% inflation is really 4%. Still good, just less exciting than the poster.
When this calculator is not the right tool
Compound interest math assumes a constant rate and regular contributions. Real investments fluctuate. Use this to set expectations and model scenarios, not to predict the future.
For variable-return investments (stocks, crypto), consider running the calculation with your expected average, then again with a pessimistic rate, to see the range of possible outcomes.
For debt (credit cards, loans), compound interest works against you — principal and rate mechanics are the same but you're the one paying. Use a loan or credit card interest calculator in that case.
Frequently asked questions
What is the difference between simple and compound interest?▾
Simple interest earns only on the original principal. Compound interest earns on the principal plus all previously earned interest. Over long periods, compounding produces dramatically larger balances.
How often should interest compound?▾
More frequent compounding produces slightly higher returns: daily > monthly > quarterly > annually. The difference between monthly and daily is small in practice (a few basis points). This calculator uses monthly compounding, the most common convention.
Is 10% annual return realistic?▾
Historically, the US stock market has averaged around 10% nominal (7% after inflation) over 100+ year windows, but with significant volatility year-to-year. For conservative planning, 6–8% is a reasonable long-term assumption.
What if I withdraw money along the way?▾
This calculator assumes no withdrawals. Each withdrawal removes the principal that would have compounded for the remaining time, so early withdrawals hurt the most. A separate retirement-withdrawal calculator is better for drawdown scenarios.
Does this include taxes?▾
No. Taxes on interest (in taxable accounts) reduce effective return. In tax-advantaged accounts (401k, IRA, Roth, ISA, PGBL, PPR), growth compounds tax-free or tax-deferred. Use the pre-tax rate for tax-advantaged accounts, and your after-tax rate for taxable accounts.
Sources
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