What is compound interest?
Compound interest is interest earned on both your original money and the interest it has already earned. Instead of growing in a straight line, the balance grows faster every year because each period's interest is added to the base for the next period. This snowball effect is why starting early matters so much for savings and investing.
The classic formula for a single deposit is A = P(1 + r/n)nt, where P is the principal, r the annual rate, n the number of compounding periods per year and t the number of years. This calculator extends that by adding a contribution at the end of every month, converting the compounding frequency into an equivalent monthly rate so the math stays accurate whether interest compounds daily, monthly, quarterly or yearly.
Example
Invest $10,000 today, add $200 a month, and earn 7% compounded monthly. After 20 years you would have contributed $58,000, but the balance would be roughly $144,000. More than half of the ending value comes from interest, not deposits.
The Rule of 72
A quick mental shortcut: divide 72 by your annual return to estimate how many years it takes money to double. At 6% it doubles in about 12 years; at 9%, about 8 years.
Getting realistic numbers
- High-yield savings accounts and CDs pay a fairly predictable rate, so projections are reliable.
- Stock market returns vary year to year. Long-run averages are often quoted at 7–10% before inflation, but use a conservative figure for planning.
- Inflation reduces purchasing power. Subtracting about 2–3% from your expected return gives a rough "today's dollars" picture.
- Taxes on interest and dividends can reduce growth in taxable accounts.
Use this tool to compare scenarios: higher contributions, a longer timeline or a better rate. Usually the timeline has the largest effect.
Frequently asked questions
Does compounding frequency matter much?
Somewhat. Daily vs. monthly compounding makes only a small difference; the rate, contribution amount and number of years matter far more.
Are contributions added at the start or end of the month?
This calculator assumes contributions at the end of each month, a common and slightly conservative assumption.
What is APY?
Annual percentage yield is the effective yearly return after compounding. A 5% rate compounded monthly equals about 5.12% APY.