Popup calculator Copy a link to this page Print this page Email a link to this page Scroll up to form What does this mean? Remove this row Open/Close content Close content
Add to phone

Compound Interest Calculator

$
$
Deposits made at what point in month?
Increase deposits yearly with inflation?

See how your savings or investment can grow over time using the power of compound interest.


Disclaimer: Whilst every effort has been made in building this tool, we are not to be held liable for any damages or monetary losses arising out of or in connection with the use of it. Full disclaimer. This tool is here purely as a service to you, please use it at your own risk.

How to use the compound interest calculator

Use our compound interest calculator to create a projection of how much your savings or investments might grow over a period of time. Our calculator gives you a future balance and a projected breakdown of both monthly and yearly figures, showing you how your savings or investment might change in the future. Here's how to use our calculator:

  1. Enter an initial deposit figure
  2. Enter a percentage interest rate - either yearly, monthly, weekly or daily
  3. Enter a number of years or months, or a combination of both, for the calculation
  4. Select your compounding interval
  5. Include any regular monthly, quarterly or yearly deposits or withdrawals

What is compound interest?

Compound interest, or 'interest on interest', is calculated using the compound interest formula. The concept is that interest is added back onto your principal sum, with future interest calculations being carried out on the total of both the original principal and already-accrued interest. According to an article published in the Journal of Economic Education in 2016, less than one-third of the U.S. population comprehends how compound interest fundamentally works 1. If you would like to learn more about it, you can read our article, what is compound interest?

The idea of compound interest has been around a long time, with limited evidence suggesting ancient civilizations may even have known about it. At the Louvre in Paris, there exists a clay tablet from Babylon, possibly dating from between 2000 to 1700 B.C., which appears to show a compound interest problem. However, it seems likely that it wasn't until medieval times that mathematicians began to analyse compound interest fully 2.

How to calculate compound interest

By using our calculator, you can work out an appropriate regular saving strategy to maximise your future wealth. Compound interest is the concept of adding accumulated interest back to the principal sum, so that interest is earned on top of interest from that moment on.

The formula used in the compound interest calculator is A = P(1+r/n)(nt)

  • A = the future value of the investment
  • P = the principal investment amount
  • r = the interest rate (decimal)
  • n = the number of times that interest is compounded per period
  • t = the number of periods the money is invested for

Let's look at a simple example and say you have $10,000 in your savings account, earning 10% interest per year. Your first 5 years might look like this:

Compound interest example
Year Interest Calculation Interest Earned End Balance
Year 1 $10,000 x 10% $1,000 $11,000
Year 2 $11,000 x 10% $1,100 $12,100
Year 3 $12,100 x 10% $1,210 $13,310
Year 4 $13,310 x 10% $1,331 $14,641
Year 5 $14,641 x 10% $1,464.10 $16,105.10

Let's look at how we can calculate the year 5 figure off the bat. Remember that our initial savings balance is $10,000, earning 10% interest per year. Compounding is yearly (interest compounded once per year).

Our formula: A = P(1+r/n)(nt)

  • P = 10000.
  • r = 10/100 = 0.1 (decimal).
  • n = 1.
  • t = 5.

If we plug those figures into the formula, we get the following:

A = 10000 (1 + 0.1 / 1) (1 × 5) = 16105.10

So, the balance after 5 years is $16,105.10. We go through an example calculation in more detail, breaking down each step, in our article about the compound interest formula.

Daily, monthly or yearly compounding

Our compound interest calculator includes options for:

  • daily compounding
  • monthly compounding
  • quarterly compounding
  • half yearly and yearly compounding
  • monthly, quarterly and yearly deposits and withdrawals
  • negative interest rates

Your savings account may vary on this, so you may wish to check with your bank or financial institution to find out which frequency they compound your interest at. Our compound interest calculator allows you to enter a negative interest rate, should you wish. If you need to work out the interest due on a loan, you can use the loan calculator.

When is interest compounded?

With savings accounts, interest can be compounded at either the start or the end of the compounding period (month or year). If additional contributions are included in your calculation, my savings calculators assume that those contributions are made at the start of each period.

What is the effective annual rate?

The effective annual rate is the rate of interest that you actually receive on your savings after inclusion of compounding. When compounding of interest takes place, the effective annual rate becomes higher than the overall interest rate. The more times the interest is compounded within the year, the higher the effective annual rate will be.


↑ back to calculator

Example compound interest calculation

Here's an example chart. You invest your profit margin from a sale of an item ($1,000). We'll use a longer compounding investment period (20 years) at the same 10% per year, to keep the sum simple. Here we compare the benefits of compound interest versus standard interest and no interest at all. It's clear to see how compound interest can really give a boost to your investment.

Diagram of compound interest

When you get into a pattern of regular, consistent investing. the power of compound interest can prove an effective growth strategy for your money, as the deposits mount up and you gain interest on your interest.


References

  1. Edward Hubbard, Percival Matthews & Anya Samek (2016) Using online compound interest tools to improve financial literacy, The Journal of Economic Education, 47:2, 106-120, DOI: 10.1080/00220485.2016.1146097
  2. The emergence of compound interest, British Actuarial Journal, 2019