Four inputs, one balance
Compound interest grows a balance because interest is added back to the principal and then earns interest itself. This calculator needs four things:
- Principal — the amount you start with.
- Annual rate — the nominal yearly interest rate, before tax and fees.
- Term — years and months.
- Compounding frequency — how often interest is added: yearly, quarterly, monthly or daily.
You can also turn on a regular contribution: a fixed amount added monthly or yearly, either at the start or the end of each period.
Worked example
Start with a principal of 1,000,000, an annual rate of 5%, a 10-year term and monthly compounding, with no contributions:
- Final balance: about 1,647,009
- Total interest: about 647,009
Now add a contribution of 100,000 every month (added at the end of the month), keeping the same rate and term:
- Total contributions over 10 years: 12,000,000 (120 months × 100,000)
- Total principal paid in (initial principal + contributions): 13,000,000
- Final balance: about 17,175,237
- Total interest: about 4,175,237
The contributions make up most of the final balance here because they’re much larger than the one-time principal, but the extra interest they earn along the way is still real money — none of it would exist without compounding.
How compounding frequency changes the result
For the same nominal rate, compounding more often gives a (slightly) higher return, because interest starts earning interest sooner. At a 5% nominal annual rate, the effective annual rate is:
- Yearly compounding: exactly 5%
- Quarterly compounding: about 5.0945%
- Monthly compounding: about 5.1162%
- Daily compounding: about 5.1267%
The difference is small at everyday rates, but it grows at higher rates or over long terms — which is why the calculator reports the effective annual rate next to the nominal one.
Timing of contributions matters
A contribution added at the start of a period sits in the account for that whole period and earns interest on itself; one added at the end doesn’t earn interest until the next period. Over many periods this adds up — the “Start of period” option always produces a slightly higher final balance than “End of period” for the same contribution amount.
Rule of 72 as an approximation
The Rule of 72 estimates the number of years it takes for the principal to double: divide 72 by the annual rate. At 6% that’s 12 years, at 9% it’s 8 years. It’s a mental-math shortcut, not an exact formula — the calculator’s yearly breakdown gives you the precise figures.
What this calculator doesn’t do
The result is before tax, before account or fund fees, and not adjusted for inflation. It assumes a fixed rate for the whole term; it doesn’t model variable rates, taxes on interest, or early withdrawal.