Compound interest calculator.

What compounding means

Compounding means you earn interest on your interest. In year one you earn on your starting amount. In year two you earn on the starting amount plus year one's interest, and so on. The effect is small at first and large later, which is why time matters more than almost anything else.

The formula

With monthly compounding, the monthly rate is the yearly rate divided by twelve. Each month the balance is multiplied by one plus that monthly rate, then your monthly saving is added. The calculator repeats this for every month and reports the totals. Contributions are added at the end of each month.

A worked example

Example only. Start with 10,000, add 200 a month, assume 7% a year for 10 years. You put in 10,000 plus 24,000, which is 34,000. The balance at the end comes to about 54,714, so roughly 20,714 came from interest. Change the years to 20 and the balance rises to about 144,573 while you put in 58,000. Doubling the time more than doubles the interest.

Reading the result sensibly

The rate you type is an assumption, not a promise. Savings accounts, bonds and shares behave very differently, and returns on riskier assets vary from year to year and can be negative. Inflation also reduces what the money buys. A useful habit is to run the numbers at several rates, such as 3%, 5% and 7%, and plan on the lower end.

The calculator uses a steady rate every year, which smooths over the ups and downs that real investments have. It does not account for tax, fees or changes in what you contribute. If your account charges a one percent fee, subtract it from the rate before you enter it.

What matters most

Three levers drive the result, in this order of usefulness for most people:

1. How much you save. This is entirely in your control.
2. How long you leave it. Starting earlier beats saving more later.
3. The rate. Largely outside your control, and risk usually rises with it.

The Journal has a plain explanation, compound interest with real numbers, and a gentle introduction to index funds and compounding. Both are education, not recommendations.

Compounding works against you on debt

The same maths that grows savings makes unpaid card balances balloon. A balance of 2,000 at 22% with no payments becomes about 2,487 after a year with monthly compounding. If you have high-interest debt, paying it down is often the guaranteed way to "earn" its interest rate. See the debt payoff calculator.

Use it with a goal

If you know what you need and when, the savings goal calculator works the other way: it finds the monthly amount required. Vaulta's goals do a simpler version of that, with a target, a date and a monthly figure that is taken out of safe to spend.

Try these three experiments

Run the same inputs with the monthly saving set to zero, then to 100, then to 300. Watch how much of the final balance comes from you. Next, hold everything else fixed and change only the years from 10 to 20 to 30. Finally, drop the rate by two points and see what that does. The experiments teach more than any explanation: time and regular saving carry most of the weight, and small differences in rate matter more as time grows.