How to use it
- Enter the starting amount, the annual interest rate and the number of years.
- Choose how often interest is compounded. Savings accounts often compound monthly or daily; check your account terms.
- If you add money regularly, enter the amount, how often you add it and whether it goes in at the start or the end of each period.
- Read the final balance, how much of it you deposited and how much is interest. The chart and the table show each year.
How it works
Interest is added to the balance, and the next interest is calculated on the larger balance: that is compounding. The annual rate r compounded m times a year is converted to the equivalent rate for each contribution period: i = (1 + r/m)^(m/k) − 1, where k is the number of contributions per year. Then for each period:
- contribution at the end: balance = balance × (1 + i) + contribution
- contribution at the start: balance = (balance + contribution) × (1 + i)
Without contributions this is exactly P × (1 + r/m)^(m × t). The effective annual rate is (1 + r/m)^m − 1.
Worked example
You start with 10,000, add 100 at the end of every month, and earn 5% a year compounded monthly for 10 years. The balance reaches 31,998.32. You deposited 22,000 (10,000 plus 120 × 100), so 9,998.32 is interest. The starting 10,000 alone would grow to 16,470.09.
Tips
- Time does most of the work. The same contributions started 10 years earlier earn far more interest, because the interest itself earns interest for longer.
- Compare effective rates. Two offers with the same nominal rate but different compounding are compared by their effective annual rate.
- Real returns vary. Investment returns are not a fixed rate; a constant rate is a simplification. The results are estimates, not financial advice.