Compound interest calculator

The formula behind the number

Two things are happening at once, so the calculation is the sum of two standard formulas. The starting amount grows on its own:

FV = P(1 + r/n)^nt

and the stream of regular deposits grows as an ordinary annuity:

FV = PMT × [ ((1 + r/n)^nt − 1) / (r/n) ]

P is the starting amount, PMT the regular deposit, r the annual rate as a decimal, n the number of compounding periods per year and t the number of years. Deposits are treated as arriving at the end of each period, which is the conservative assumption and the one spreadsheets use by default.

Why the curve bends

Simple interest pays only on the original amount, so it draws a straight line. Compound interest pays on the balance including everything already earned, so each period starts from a slightly larger base. The gap between the two is small early on and becomes the dominant feature of the chart later, which is why the years you stay invested matter more than almost any other input.

Compounding frequency matters less than people expect

Moving from annual to monthly compounding produces a modest improvement; moving from monthly to daily produces a very small one. The rate you earn and the length of time you leave the money alone swamp the frequency entirely. It is worth understanding, but it is not worth chasing.

What this calculator cannot know

• Real returns vary. A fixed annual rate is a planning assumption, not a forecast. Markets deliver uneven years, and the order of good and bad years affects the outcome.
• Inflation. The result is in nominal terms. To see purchasing power, subtract expected inflation from your assumed return before entering it.
• Tax and fees. Investment charges and tax on gains reduce the effective return, sometimes substantially over decades.

Treat the number as a projection of one scenario rather than a prediction.

Frequently asked questions