How compound interest works
With compound interest, the interest you earn is added to your balance, and next time you earn interest on that bigger balance. The longer you leave your money invested, the stronger this effect becomes. That's why starting early often matters more than starting big.
The formula
For a starting amount plus regular monthly contributions, compounded monthly:
FV = P × (1 + r)n + PMT × [((1 + r)n − 1) ÷ r]
- FV: future value
- P: initial deposit
- PMT: monthly contribution
- r: monthly interest rate (annual rate ÷ 12)
- n: number of months (years × 12)
Example
If you start with 1,000, add 100 every month and earn 7% a year, after 20 years you would have put in 25,000 and your balance would be about 56,000. More than half of the final amount comes from interest.
Results are estimates for education only. They don't include inflation, taxes or fees, and investment returns are not guaranteed. See our disclaimer.
Frequently Asked Questions
What is compound interest?
Compound interest is interest earned on both your original money and on the interest it has already earned. Over time, this "interest on interest" makes your savings grow faster than simple interest, which is paid only on the original amount.
How often is interest compounded in this calculator?
This calculator compounds interest monthly and assumes your monthly contribution is added at the end of each month. Many savings accounts and investment projections use monthly compounding.
What interest rate should I use?
Use the rate you realistically expect. For a savings account, use its stated annual rate. For long-term stock market investing, many people test a few conservative rates, because returns vary from year to year and are never guaranteed.
Does this calculator include inflation or taxes?
No. The results do not account for inflation, taxes or fees, all of which reduce real returns. To estimate growth in today’s money, try entering a rate that is lower than your expected return by the inflation rate.