What is compound interest?
Compound interest is interest earned on interest. At the end of each compounding period, the interest you have earned is added to your balance — so the next period's interest is calculated on a bigger amount. The result is growth that starts slowly and accelerates: a curve, not a straight line. It is the engine behind long-term investing, retirement accounts and, on the flip side, credit-card debt.
The compound interest formula
Where A is the final amount, P is the starting principal, r is the annual rate as a decimal, n is how many times interest compounds per year, and t is the time in years. When you add a regular deposit each period, each deposit gets its own compounding for the time it is invested — this calculator adds your monthly deposits period by period, exactly as an account would.
Why time matters more than rate
Because growth compounds, years in the market usually beat a slightly higher rate. Money at 5% doubles in about 14.2 years; at 7% in about 10.2 years (the Rule of 72: divide 72 by the rate). But starting five years earlier at the lower rate often wins, because those early years' interest compounds for the longest time. The year-by-year table below makes the acceleration visible — watch how the interest column overtakes your deposits in the later years.
Compounding frequency: does it matter?
Monthly compounding beats yearly compounding at the same headline rate, and daily beats monthly — but the differences are modest. At 5% over 10 years on $10,000: yearly compounding gives $16,288.95, monthly gives $16,470.09, daily gives $16,486.65. Frequency is a tie-breaker between accounts, never a reason to delay starting.
Worked example
You invest $10,000 at 5% per year, compounded yearly, for 10 years. The formula gives A = $10,000 × (1.05)10 = $16,288.95 — your $10,000 earned $6,288.95 without you adding a cent. Compare that with simple interest on the same terms: just $15,000. The $1,288.95 gap is the compounding effect in only ten years.
How to use this calculator
- Enter your starting amount — what you have today or plan to invest first.
- Enter the expected annual interest rate or return.
- Enter how many years the money will stay invested.
- Choose how often interest compounds, and add a monthly deposit if you plan to contribute regularly.
- Check the year-by-year table to see when interest starts out-earning your deposits.
The other side of compounding
Compounding works against you on debt. Credit cards compound daily at high rates, so balances grow on the same curve as this chart — just pointed at your wallet. If you carry card debt, the Debt Payoff Calculator shows how extra monthly payments flatten that curve.