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How compound interest works
Compound interest means you earn interest not only on your original principal but also on the interest that has already accumulated. Over time, this "interest on interest" effect turns steady contributions into exponential growth — which is why starting early matters so much.
The formula
The future value of a single lump sum is:
where P is the principal, r the annual rate as a decimal, n the number of compounding periods per year, and t the number of years. Recurring monthly contributions are added with the ordinary annuity formula:
The total future value is the sum of the two. Your "total invested" is simply principal plus every monthly contribution; the difference between future value and total invested is the interest you earned.
How to use this calculator
Enter your starting amount, then add a monthly contribution if you plan to invest regularly. Set the annual rate, the number of years, and the compounding frequency. The results show your future value, total invested, and total interest. The chart plots your growing balance (green) against your total contributions (grey) — the widening gap between the two lines is your compounding gain.
Explore more tools
- Compounding frequency comparison — see how much more frequent compounding earns.
- Retirement calculator — how much to save each month to hit your goal.
- Inflation calculator — what your money will really be worth.