Compound Interest
The compound interest calculator works out the return on a deposit compounded monthly, quarterly or annually, with monthly contributions and a yearly table.
The compound interest calculator works out the return on a deposit with interest compounded monthly, quarterly or annually, with optional monthly contributions. It shows the final balance, interest earned, the effective rate and a year-by-year table.
Simple vs compound interest
- Simple interest is earned only on the original amount. $100,000 at 12% a year for 2 years earns $24,000.
- Compound interest is added to the deposit, so in the next period interest is earned on a larger amount — "interest on interest".
Compound interest formula
A = P · (1 + r/100 · n)n · t
where P is the initial amount, r is the annual rate in percent, n is the number of compounding periods per year (12 — monthly, 4 — quarterly, 1 — annually), and t is the term in years.
Example. $100,000 at 12% a year for 2 years.
Compounded annually: 100,000 · 1.122 = 125,440
Compounded monthly: 100,000 · 1.0124 ≈ 126,973.46
Simple interest: 100,000 · (1 + 0.12 · 2) = 124,000
Effective annual rate
Because of compounding, the real yearly return is higher than the stated rate. For 12% compounded monthly, the effective annual rate is (1 + 0.01)12 − 1 ≈ 12.68%. Compare deposits by their effective rate.
The rule of 72
To estimate how many years it takes to double your money, divide 72 by the rate: at 12% a year it takes about 72 / 12 = 6 years.
The calculation is done month by month and does not account for taxes on interest or the exact number of days in each month, so a bank's figure may differ slightly.