What is compound interest?
Compound interest is interest earned on both your original money and the interest it has already earned. Over time this “interest on interest” makes your balance grow faster and faster — which is why starting early matters so much.
Compound interest formula
For a single deposit, the future value is:
A = P × (1 + r/n)n×t
- A = final amount
- P = starting principal
- r = annual interest rate (as a decimal)
- n = number of times interest compounds per year
- t = number of years
With regular monthly contributions, this calculator works through every month: it adds interest at the correct rate for your compounding frequency, then adds your deposit (or adds the deposit first if you choose start of month).
Example
Start with 10,000, add 200 a month, and earn 7% a year compounded monthly. After 15 years you would have about 91,900. You contributed 46,000 — the other ~45,900 is interest earned by compounding.
Does compounding frequency matter?
Yes, but less than most people think. More frequent compounding gives a slightly higher effective annual rate. At 7%, yearly compounding gives exactly 7.00%, monthly gives about 7.23%, and daily about 7.25%. Your contribution amount and time invested have a much bigger impact.
Tips to make compounding work for you
- Start early – ten extra years can double your final balance.
- Contribute regularly – small monthly amounts add up quickly.
- Increase contributions yearly – use the optional yearly increase to match pay rises.
- Keep fees low – a 1% yearly fee reduces your effective return by the same amount.