Bureau of Wealth

Compound Interest Calculator

By the Bureau of Wealth team Updated

This calculator is general information, not financial advice. Check your own figures with the provider or a qualified adviser before acting on them.

Enter a starting amount, a monthly contribution, a rate and a time frame to see your final balance and how much of it is interest rather than money you paid in.

Interest compounds

Check the highlighted fields to see your results.

What this calculator assumes

  • The annual rate you enter stays the same every year. Savings rates change and investment returns go up and down, so treat the result as an illustration, not a forecast.
  • You add the same monthly contribution at the end of every month and make no withdrawals.
  • With yearly or daily compounding, the calculator converts the rate to its equivalent growth per month, so deposits made during the year start growing straight away. An account that credits interest only once a year can pay slightly less.
  • Taxes are not deducted. Interest in a regular savings or brokerage account is generally taxable each year, while growth in a 401(k) or IRA follows different rules.
  • Fees are not included. An investment that charges a yearly fee grows more slowly than the rate you enter.

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How compound interest is worked out

Compound interest is interest paid on your original money and on the interest it has already earned, the definition Investor.gov, the SEC's investor education site, gives. Each time interest is added, the next round of interest is worked out on a larger balance, so growth speeds up the longer you leave the money alone.

The calculator works month by month. It grows the balance by one month's worth of interest at the compounding frequency you choose, then adds your monthly contribution. It repeats this for every month of every year, and records what you have paid in and what the balance is at the end of each year for the table and chart.

A worked example

Say you start with $10,000, add $200 a month and earn 6% a year, compounded monthly. After 20 years the balance is $125,510.22. You paid in $58,000 of that, so $67,510.22 is interest, more than you contributed yourself.

Time does most of the work. The same plan reaches $50,969.84 after 10 years, of which $16,969.84 is interest. After 30 years it reaches $261,128.76, and interest makes up $179,128.76. Adding 10 years at the end more than doubles the balance, because by then the interest is being earned on a much larger sum.

Yearly, monthly or daily compounding

More frequent compounding adds a little, but less than you might expect. On the 20-year example above, yearly compounding gives $122,759.08, monthly gives $125,510.22 and daily gives $125,765.32. The rate and the number of years matter far more: the same plan at 4% instead of 6% ends at $95,580.75.

This is why banks quote the annual percentage yield, or APY, on savings accounts. The APY already includes the effect of compounding, so two accounts can be compared directly. If you enter an APY, choose yearly compounding to avoid counting the compounding twice.

Using the result sensibly

For a savings account or certificate of deposit, use the current APY and remember that most savings rates can change. For stocks or funds, there is no fixed rate. Returns vary from year to year and can be negative, so try a cautious rate and a more hopeful one to see a range rather than a single number.

Look at the year-by-year breakdown too. In the early years most of the growth comes from your deposits. Later, interest overtakes them. Starting a few years earlier, or raising your contribution when your income rises, often makes more difference than hunting for a slightly higher rate.

Related calculators

If you have a target in mind, the savings goal calculator works backwards from the amount and the deadline to the monthly deposit you need. If you invest through funds or an adviser, the investment fees calculator shows how much a yearly fee takes out of the same compounding.

Frequently asked questions

What is the difference between simple and compound interest?

Simple interest is paid only on the money you put in. Compound interest is also paid on interest you have already earned, so the balance grows faster each year you leave it untouched.

Does daily compounding make a big difference?

Not usually. On $10,000 plus $200 a month at 6% for 20 years, daily compounding beats monthly by about $255. The rate you earn and how long you save matter much more.

Should I enter the APR or the APY?

The APY already includes compounding, so if you use it, choose yearly compounding. If you have a nominal rate that is compounded monthly or daily, enter that rate and pick the matching frequency.

Can I use this for stock market investments?

You can, as a rough illustration. Investments do not grow at a steady rate and can lose value, so the result shows what a constant average return would produce, not what will happen.

Why does most of the growth come at the end?

Each year's interest is worked out on a balance that includes all the earlier interest. The balance is largest in the final years, so the interest earned in those years is largest too.

Sources

Figures come from institutions millions of people rely on. How we keep calculators accurate.