How to calculate compound interest
- Enter the Starting amount and how much you’ll add as a Monthly deposit. Either can be 0.
- Enter the yearly Interest rate, the number of Years and how often interest is Compounded.
- Read the final balance, how much of it is interest, and the table showing the balance at the end of each year.
Regular deposits do most of the work
With the default numbers (10,000 to start, 200 a month, 5% compounded monthly), the balance after 10 years is 47,526.55. You put in 34,000 of that, and 13,526.55 is interest. Over longer periods interest takes over: 200 a month alone for 30 years at the same rate adds up to 72,000 of deposits and 166,451.73 in the account, so more than half the final balance is interest.
The yearly table makes this visible. In the early years the interest column grows slowly, then each year adds more than the last because the interest is earned on a bigger balance.
Does compounding frequency matter?
Less than people expect. Here is 10,000 at 5% for 10 years with no deposits:
| Compounded | Final balance | Effective yearly rate |
|---|---|---|
| Yearly | 16,288.95 | 5% |
| Quarterly | 16,436.19 | 5.095% |
| Monthly | 16,470.09 | 5.116% |
| Daily | 16,486.65 | 5.127% |
The jump from yearly to monthly is worth noticing, but daily adds very little on top. The rate itself, the time you leave the money and how much you add matter far more. Results assume a fixed rate and no tax or fees.