Use this compound interest calculator to illustrate the effect of compounding on your savings. A compound interest calculator is a valuable tool as your savings in a retirement savings plan can really add up. It utilizes inputs such as interest rate to show how it interacts with additional deposits and compound interest formulas. You may also find the savings calculator and interest rate calculator useful. Interested in our savings tables? Check out our compound interest tables ▸▸.
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What is compound interest?
The concept behind compound interest is of money, or to use its ancient synonym to define, "interest on interest." This concept allows your money to grow at an accelerating rate over time, as interest earned is reinvested and begins generating its own interest in turn.
With simple interest, which is calculated on only the principal, no interest is earned on a compounded basis. But with compound interest, returns are generated both on the original deposit and on the interest that has previously been earned.
When you save money in a savings account, a retirement fund or invest in stocks, the returns you earn can be compounded over time. This means that your money grows not just on your original amount but on all the interest earned up until that point. Over long periods, the gains can be significant — even from relatively modest initial deposits.
Compound Interest Example
$1000 at 10% for 20 years
See how your money grows with the power of compounding
INTEREST = $5,727.50
PRINCIPAL = $1,000
TOTAL = $6,727.50
So, compound interest is earned interest? Use our tool to find out. Simply set out the initial investment, interest rate and contribution amount — then view the results.
"My wealth has come from a combination of living in America, some lucky genes, and compound interest."
Making compound interest work for you
Here are four key tips to maximise the benefit of compound interest for your savings:
Start Early: The earlier you begin to save and invest, the better. By starting early, even with small amounts, you'll have more time to benefit from compounding.
Regular Contributions: By consistently adding a set amount each month or year to your savings, you increase both the principal and the interest earned — accelerating growth.
Higher Compounding Frequency: When possible, opt for accounts that compound more frequently (e.g. monthly or daily rather than annually). The more often interest is compounded, the greater the potential for growth.
Leave it to Grow: Resist the urge to withdraw early. The longer you leave your money invested to compound/stack, the greater the snowball effect on growth.
There are many options open to you to invest your money. You'll want to look at banks and products that pay compound interest. Some popular options include savings accounts, certificates of deposit (CDs), money market accounts, and bonds.
Online-only banks often offer higher interest rates for savings accounts compared to traditional banks, as they have lower overhead costs.
Note that we have some useful articles around savings and compound interest to help you along the way:
Compound interest is calculated using the compound interest formula. To calculate the future value of your investment, you need to know the initial deposit, the interest rate, the compounding frequency and the number of years. All of those variables can be entered into our calculator above to give you an immediate answer.
The basic compound interest formula is:
A = P(1 + r/n)nt
A = final amount | P = principal | r = annual interest rate (decimal)
n = compounds per year | t = time in years
For example, if you invest $1,000 at a 5% annual interest rate, compounded monthly for 10 years, the calculation would look like this:
Whether $5,000 (or any amount of money) is worth a lot more in 20 years depends on the interest rate and the compounding frequency you choose. Here is a table showing the growth of $5,000 over 20 years at various interest rates, compounded monthly:
Interest Rate
5 years
10 years
20 years
30 years
Compounding interval has a modest effect. Calculate some of these to see what works for you. The difference between monthly and daily compounding for $5,000 at 5% over 20 years is about $12 — not insignificant, but not huge either. You can check all of this with our compound interest calculator.
Compounding with additional deposits
Adding regular contributions to your principal can dramatically accelerate your compound interest growth. Even small monthly deposits can make a substantial difference over the long term.
For example, investing $5,000 at 5% compounded monthly with an additional $100 monthly deposit will grow to approximately $23,763 in 10 years — compared to just $8,235 without the additional deposits.
A consistent monthly contribution is one of the most powerful levers you have. Some contributions need to be a certain amount. For example, a 401(k) or an ISA may have contribution limits or minimum payments. You should check with your financial provider for rules around deposits and withdrawals.
To illustrate our point further, consider the table below with a $100 monthly deposit at a 5% compound monthly rate. This is an extraordinary level of interest accumulation over time.
Our tool, with its extended settings, can also handle this for you. See our savings goal calculator for a focused breakdown.
Frequently asked questions
Why is compound interest so powerful?
Compound interest is powerful because it creates an exponential growth curve. Each compounding period adds interest to both your original principal and all previously accumulated interest, creating a snowball effect that accelerates over time.
What is the effective annual interest rate?
The effective annual rate (or APY — Annual Percentage Yield) is the rate of interest after accounting for compounding over a year. For example, a 5% annual rate compounded monthly gives an APY of approximately 5.116%.
What is Rule72?
The Rule of 72 is a quick, useful formula for estimating how long it takes for an investment to double at a fixed annual interest rate. Simply divide 72 by the annual rate: at 6%, money doubles in roughly 12 years.
Compounding interest means that, if you start early and contribute regularly, even modest amounts can grow into substantial sums over time. By taking advantage of compounding, you can build a stronger financial future — whether you're saving for retirement, a house, education, or any other long-term goal.
Our compound interest calculator helps you explore different scenarios. Enter your figures and see for yourself the power of compound interest!