Calculate the total interest earned on any principal amount using compound interest. Choose your compounding frequency to see exactly how your savings or investment grows over time.
This calculator uses the compound interest formula A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate as a decimal, n is the number of compounding periods per year, and t is the time in years. The key distinction between simple and compound interest is that compound interest earns returns on previously accumulated interest, not just the original principal. This creates exponential rather than linear growth.
For example, $10,000 at 5% annual simple interest earns a flat $500 per year — $5,000 over 10 years. The same amount with monthly compounding earns $6,470 over the same period. The extra $1,470 comes entirely from interest earned on interest. Over 20 years, the gap widens to over $6,000. Over 30 years, compound interest nearly doubles the return compared to simple interest.
The compounding frequency has a real but relatively modest effect compared to the interest rate and time horizon. Daily compounding on $10,000 at 5% for 10 years yields $16,487 — only $197 more than annual compounding at $16,289. Choose the highest available compounding frequency, but don't sacrifice a higher interest rate for more frequent compounding.
Example 1: $5,000 at 4% compounded monthly for 5 years: A = 5,000 × (1+0.04/12)^60 = $6,100.00. Interest earned: $1,100.
Example 2: $20,000 at 6% compounded quarterly for 15 years: A = 20,000 × (1+0.06/4)^60 = $48,451. Interest earned: $28,451 — 142% return on principal.
Example 3: $1,000 at 8% compounded daily for 30 years: A = $11,023. This illustrates the power of long time horizons even with a small starting amount.
To maximize compound interest: start as early as possible since time is the most powerful factor; reinvest all interest rather than withdrawing it; choose accounts with the highest available interest rate; make additional contributions regularly to accelerate growth; and avoid early withdrawal penalties that can erode compounding benefits.
APR is the stated annual interest rate before compounding. APY (Annual Percentage Yield) is the effective annual rate after compounding is applied. For a 5% APR compounded monthly, the APY is approximately 5.116%. When comparing savings accounts, always compare APYs for an accurate comparison.
This depends on current market conditions. As of recent years, high-yield savings accounts and money market accounts have offered 4–5% APY. Traditional bank savings accounts often offer 0.01–0.5%. Online banks and credit unions typically offer higher rates. Always compare current rates from multiple institutions.
When you carry a credit card balance, the same compounding math works against you. A $5,000 balance at 22% APR compounded monthly grows to $6,232 after just 12 months with no payments. This is why high-interest debt should be eliminated before prioritizing savings or investments.
Series I bonds and EE bonds use fixed and variable rates with semi-annual compounding. This calculator can approximate their growth by using the current composite rate and selecting semi-annual compounding. For exact calculations, use TreasuryDirect.gov.
Most high-yield savings accounts compound daily and credit interest monthly. Some accounts compound and credit monthly. Certificate of Deposits (CDs) typically compound daily. The more frequently interest compounds, the slightly higher your effective yield — though the difference between daily and monthly compounding is small.