What is compound interest?
With simple interest, you earn interest only on the money you put in. With compound interest, the interest is added to your balance, and next time you earn interest on that too. Over long periods the difference is huge — which is why starting early matters more than investing large amounts.
Compound interest formula
- A = final amount, P = starting principal
- r = annual interest rate as a decimal (8% = 0.08)
- n = times interest compounds per year
- t = number of years
With regular monthly contributions, the calculator adds each deposit at the end of the month and compounds the balance at your chosen frequency.
Example: $10,000 plus $500 a month at 8% compounded monthly grows to about $343,000 after 20 years. You put in $130,000; the remaining ~$213,000 is interest.
The Rule of 72
A quick way to estimate how long money takes to double: divide 72 by the annual interest rate. At 8%, money doubles in about 9 years; at 12%, about 6 years.
Three ways to make compounding work harder
- Start early. Ten extra years can more than double the final balance.
- Contribute regularly. Automate a monthly transfer so you never skip it.
- Keep costs low. A 1% yearly fee can eat a quarter of your returns over 30 years.
Investing in mutual funds in India? The SIP calculator supports yearly step-ups. Saving in a bank deposit? Try the FD calculator.
Frequently asked questions
How often should interest compound?
The more often, the better for savers, but the difference between daily and monthly compounding is small. The interest rate and time matter far more.
What is APY?
APY (annual percentage yield) is the effective yearly return including compounding. A 5% rate compounded monthly gives an APY of about 5.12%.
Does the calculator include taxes or inflation?
No. It shows growth before tax and in future money. Subtract expected tax and inflation for a real-world figure.
Are contributions added at the start or end of the month?
At the end of each month, which is the usual convention for savings calculators.
