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# Compound interest calculator

As your savings get larger, compound interest works faster, making it one of your most powerful wealth-building tools. Use our calculator to find out how much you could earn with compound interest.

### How do banks calculate compound interest?

With most savings accounts, interest is calculated every day on your daily closing balance.

#### Compound interest formula

Hereâ€™s the equation that most banks use for savings accounts:

##### (Daily closing balance) x (interest rate)365

Interest begins to accumulate on the day of your first deposit. Itâ€™s then credited to your account on the last day of each month. If you close your account, your accrued interest is deposited on the day itâ€™s closed.

Any interest awarded to your savings account is typically available for use on the same day itâ€™s credited.

### How can I figure out compound interest?

Compound interest is a complicated calculation thatâ€™s often easier left to online calculators designed for that purpose. Still, you can refer to the same formula banks use to calculate your compound interest:

Daily closing balance x interest rate percentage / 365

Say you invest \$1,000 with an interest rate of 10% compounded annually for 5 years. Using the compound interest formula, youâ€™ll find that your initial investment of \$1,000 earns \$100 after the first year, giving you a total of \$1,100.

That amount will then grow by 10% the following year, bringing your balance to \$1,210. This amount is compounded the third year, and so on. After 5 years, your original balance would have grown to \$1,610 due simply to compounding interest.

### How does compound interest work in technical terms?

Think of compounding as a way of earning interest on your interest. The amount you invest in a savings account earns interest, which is rolled into the total investment. The total investment continues earning interest â€“ only this time, on a bigger balance than before.

Compound interest differs from simple interest, which is typically associated with loans. For loans, simple interest is calculated on the principal â€” or the original loan amount â€“ only. Interest is not part of the calculation.

Again, itâ€™s complicated. But we can get an idea of the benefits of compound interest on your savings by analyzing the mathematical formula associated with it:

Hereâ€™s what those symbols represent:

• A â€“ the future value of your total investment, including earned interest
• P â€“ your initial deposit amount or principal investment
• r â€“ the interest rate annually as a decimal
• n â€“ how often interest is compounded each year
• t â€“ the number of years the money is invested for

For most savings accounts, your interest is compounded monthly â€“ or 12 times in a year. For long-term savings products, like Guaranteed Investment Certificates (GICs), the formula or compounding period may differ.

#### Example: How compound interest helps your savings grow

To better understand the benefits of compound interest, take a look at the following example:

Here, Miles deposits \$5,000 into a standard savings account that pays interest at a rate of 1.5%.

Interest is calculated daily and deposited into the account at the end of each quarter:

Principal (P)Rate (r)Compound (n)Time (t)Interest earned after 1 year
\$5,0001.5%41\$75.42

At that same rate for the next 5 years, hereâ€™s how much heâ€™ll earn:

Principal (P)Rate (r)Compound (n)Time (t)Interest earned after 5 years
\$5,0001.5%45\$388.66

If interest is paid annually, hereâ€™s where Milesâ€™s interest earnings would stand after 5 years:

Principal (P)Rate (r)Compound (n)Time (t)Interest earned after 5 years
\$5,0001.5%15\$386.42

If interest is compounded daily, hereâ€™s interest earnings after 5 years:

Principal (P)Rate (r)Compound (n)Time (t)Interest earned after 5 years
\$5,0001.5%3655\$389.41

Note that for accurate calculations, you canâ€™t account for any withdrawals or fees deducted from the balance over the period youâ€™re calculating. Adding to your balance also changes your results. (Thatâ€™s why we said itâ€™s complicated!)

### Compare savings accounts with compound interest

1 - 4 of 4
Name Product Promo Rate Regular Interest Rate Transaction Fee 1 Year Return Offer
Simplii High Interest Savings Account
6.00% until January 31, 2024
0.40%
\$0
\$176.73
EQ Bank Savings Plus Account
3.00% for 12 months
2.50%
\$0
\$300.00
KOHO Earn Interest
N/A
4.50%
\$0
\$450.00
Use promo code FINDERCODE and get a \$20 cash bonus when you make your first purchase within 30 days.
National Bank High Interest Savings Account
N/A
1.70%
\$0
\$170.00