How to use the compound interest calculator
- Enter the starting amount and pick your currency.
- Enter the yearly interest rate and the number of years.
- Choose how often interest is compounded – banks often use monthly or quarterly.
- Optionally add a monthly deposit (paid at the end of each month).
Compound interest formula
A = P\left(1 + \dfrac{r}{n}\right)^{n t}A– the final amount,P– the starting amountr– the yearly rate as a decimal (8% = 0.08)n– compounding periods a year (12 for monthly),t– years
A = 10000 \times \left(1 + \tfrac{0.08}{12}\right)^{120} = 10000 \times 2.2196 = 22{,}196- Interest earned: 22,196 − 10,000 = 12,196 – more than the starting amount.
With simple interest the same money would earn only 8,000 – compounding adds 4,196 by paying interest on interest.
How compounding frequency changes the result
10,000 at 8% for 10 years:
| Compounded | Final amount | Effective yearly rate |
|---|---|---|
| Yearly | 21,589 | 8.000% |
| Half-yearly | 21,911 | 8.160% |
| Quarterly | 22,080 | 8.243% |
| Monthly | 22,196 | 8.300% |
| Daily | 22,253 | 8.328% |
More frequent compounding helps, but the rate and the time matter far more. The rule of 72 gives a quick estimate: money doubles in about 72 ÷ rate years – 9 years at 8%.
Investing a fixed amount every month in a fund? Try the SIP calculator. For a bank deposit, the FD calculator.
Frequently asked questions
What is compound interest?
Interest that is added to your balance and then earns interest itself. Each period you earn interest on the original amount and on all the interest so far, so growth speeds up over time.
How is compound interest different from simple interest?
Simple interest is paid only on the original amount. Compound interest is paid on the growing balance. 10,000 at 8% for 10 years earns 8,000 simple interest but 12,196 compounded monthly.
Does compounding monthly or daily make a big difference?
A little. At 8% the effective yearly rate is 8.30% monthly and 8.33% daily – a much smaller difference than a higher rate or more years.
What is APY or the effective yearly rate?
The rate you actually earn in a year once compounding is included. 8% compounded monthly gives an APY of 8.30%.
When are monthly deposits added?
At the end of each month, so a deposit starts earning from the following month – the usual assumption for savings plans.