How Compound Interest Works
Compound interest is interest earned not just on your original principal, but also on the interest that has already accumulated. The more frequently interest compounds — daily, monthly, quarterly, or annually — the faster your balance grows, because each compounding period adds a little more to the base on which future interest is calculated. This calculator converts your chosen compounding frequency into an equivalent monthly growth rate and simulates your balance month by month, including any regular contributions you add.
Why Contributions Matter
Adding a monthly contribution on top of compound interest dramatically accelerates growth over long time horizons, because each new contribution starts earning its own compound interest immediately. This is the core principle behind long-term retirement and investment accounts — consistent contributions combined with compounding can turn modest monthly savings into a substantial balance over decades.
FAQ
What compounding frequency should I use?
Use whatever your account actually offers — savings accounts often compound daily or monthly, while some investment products compound quarterly or annually. Check your account terms for the exact figure.
Does the monthly contribution earn interest right away?
In this calculator, each month's contribution is added to the balance before that month's growth is applied, so it starts compounding immediately.
Is this calculator accurate for investment returns?
This tool assumes a fixed, steady interest rate. Real investment returns fluctuate, so treat the result as an estimate for planning purposes, not a guarantee.