Compound interest is an effective tool that helps your money grow faster. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated based on your growing balance, including any interest you’ve already earned. Use this calculator to find out how much you could earn with the power of compound interest.
Compound interest calculator
Calculate your compound interest to find out how much your savings will grow over time.
How to use the compound interest calculator
Use these seven steps to determine how much interest you could earn with the calculator.
Fill in the initial deposit, which is the amount of money you plan to deposit when opening the savings account.
Use the drop-down menu to choose whether you plan on adding funds to the account weekly, every two weeks or monthly.
Enter the dollar amount of the ongoing deposits you plan to make.
Fill in the current interest rate offered by the savings account.
Choose a length of time, ranging from one to 40 years, that you plan on leaving your savings in the account.
Click or tap Calculate.
View the total to see what your balance will be when the period ends and how much interest you will have earned.
How often is interest paid?
Most savings accounts calculate interest on a daily basis, but they only pay it into your account once a month or in some cases once every three months. Ideally, you want a bank that pays interest as often as possible because this lets you maximize the amount of interest you’ll earn on your interest. A savings account that pays interest monthly will grow faster than an account that gets paid quarterly, especially if you have a large balance in the account for several years.
Case Study: How compound interest helps your savings grow
To better understand the benefits of compound interest, take a look at how one saver’s account grows depending on any number of factors found with your typical savings account.
Here, Miles deposits $5,000 into a standard savings account that pays interest at a rate of 3.5%.
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
$5,000
3.5%
4
1
$177.31
At that same rate for the next five years, here’s how much he’ll earn:
Principal (P)
Rate (r)
Compound (n)
Time (t)
Interest earned after 5 years
$5,000
3.5%
4
5
$951.70
If interest is paid annually, here’s where Miles’s interest earnings would stand after five years:
Principal (P)
Rate (r)
Compound (n)
Time (t)
Interest earned after 5 years
$5,000
3.5%
1
5
$938.43
If interest is compounded daily, here’s interest earnings after five years:
Principal (P)
Rate (r)
Compound (n)
Time (t)
Interest earned after 5 years
$5,000
3.5%
365
5
$956.18
Note that for accurate calculations, you can’t account for any withdrawals or fees deducted from the balance over the period you’re calculating. Adding to your balance also changes your results. We did say it’s complicated.
With most savings accounts, interest is calculated every day on your daily closing balance.
Compound interest formula
Here’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. It’s then credited into your account on the last day of each month. If you close your account, your accrued interest is deposited on the day it’s closed.
Any interest awarded to your savings account is typically available for use on the same day it’s credited.
How can I calculate the compound interest?
Compound interest is a complicated calculation that’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 five years. Using the compound interest formula, you’ll find that your initial investment of $1,000 earns $100 after the first year, giving you a total of $1,100.
The total amount yielded for the first year will then earn $110 — 10% of $1,100 — as interest for the next year, bringing your balance to $1,210. This amount then becomes the base for compounding for the third year, and so on. After five years, your initial balance would total $1,610 due to compounding interest alone.
How does compound interest work in technical terms?
Think of compounding as a way of earning interest on your interest. A savings account with ongoing compound interest applies interest to the interest that you’re already paid.
Compound interest differs from simple interest, which is typically associated with loans. For loans, simple interest is calculated on the principal — or the original loan amount — only.
Again, it’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:
Here’s what those letters and annotations represent:
A — the future value of your total investment, including earned interest
P — your initial deposit amount or principal investment
r — the interest rate annually as a decimal
n — how often interest is compounded each year
t — the number of years the money is invested for
For most savings accounts, your interest is compounded monthly — or 12 times in a year. For long-term savings products, like certificates of deposit, the formula or compounding period may differ.
Calculate using current savings interest rates
Fill in an initial deposit, monthly deposit and number of months to calculate out how much interest you could earn in each of these leading savings accounts.
Compound interest vs simple interest
When interest earned on your balance starts earning interest itself, that is known as compound interest. This is different from simple interest, which earns a set rate of interest only on the principal amount saved.
Bottom line
A savings account with compound interest can help you reach your financial goals sooner, just for letting your money sit in the account. Most of today’s savings accounts use compound interest, but you should check the terms and conditions because it can help your balance grow much faster than an account with simple interest. Or, you can compare some of our top-rated options to find out what other savings accounts are out there.
Frequently asked questions
A compounding period is the amount of time that elapses before the interest is paid and added to your balance. An account that has a monthly compounding period would pay interest every month. A greater number of compounding periods will allow your balance to grow faster.
Compound interest is usually paid automatically into your account, at the date according to your account’s compounding period.
Yes, but not on savings accounts. Some loans may have compound interest instead of simple interest, meaning you will be paying interest on your outstanding balance rather than just the principal amount.
No, but most of them do. Speak with your financial institution or read the terms and conditions to find out if your account pays compound interest.
Peter Carleton is a writer that covers banking and investing, breaking down what you need to know about where you put your money. When Peter's not thinking about cutting-edge banking apps and robo-advisors, he runs a creative agency and spends his spare time cooking or reading.
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