Quick answer: With compound interest you earn interest on your interest. The balance after t years is A = P × (1 + r ÷ n)n × t for a single deposit, and regular deposits add to it each period. Starting with $10,000 and adding $200 a month at 7% grows to $144,573 in 20 years, of which only $58,000 is money you put in.
Compound interest means you earn interest on your interest. In the early years the effect looks small. After a couple of decades it does most of the work, which is why starting early and contributing regularly matters more than most people expect.
This calculator handles a starting balance plus regular monthly deposits, and lets you choose how often interest is added. It also shows the effective annual rate, which is the true yearly growth after compounding.
How compound growth is calculated
For a lump sum with no deposits, the formula is short:
A = final amount, P = starting balance, r = annual rate (as a decimal)
n = compounding periods per year, t = years
With monthly deposits, the calculator steps through the months one at a time: it grows the balance by the monthly equivalent of your rate, then adds the deposit. The yearly table lets you see how much of the balance is your own money and how much is interest.
A worked example
Example. Start with $10,000, add $500 every month, and earn 7% a year compounded monthly for 20 years. You deposit $130,000 in total and end with $300,851, so about $170,851 of the balance is interest. A steady 7% is an assumption, not a promise. Real returns vary from year to year.
How time changes the result
| Time | You put in | Interest earned | Balance |
|---|---|---|---|
| 10 years | $34,000 | $20,714 | $54,714 |
| 20 years | $58,000 | $86,573 | $144,573 |
| 30 years | $82,000 | $243,159 | $325,159 |
$10,000 to start plus $200 a month at 7% a year, compounded monthly. The longer the money stays invested, the more of the balance comes from interest rather than deposits.
Common mistakes to avoid
- Treating an assumed return as a promise. Investments can fall as well as rise, so use a cautious rate and try several.
- Ignoring inflation and fees. A 7% return with 1% in fees and 3% inflation is a much smaller gain in real terms.
- Mixing up APR and APY. APY already includes the effect of compounding, so entering it as the rate and then compounding again overstates growth.
Go deeper: read our guide How Loan Payments Are Calculated, With Examples.
Frequently asked questions
What is the difference between compound and simple interest?
Simple interest is paid only on the original amount. Compound interest is paid on the original amount plus all interest already earned, so growth accelerates over time.
Does compounding more often make a big difference?
Only a small one. Going from annual to monthly compounding at 7% lifts the effective yearly rate from 7.00% to about 7.23%. The interest rate and the time you leave the money matter far more.
Can I use this for investments like index funds?
You can use it to model a steady assumed return, but real investments rise and fall. Treat the result as an illustration of the maths, not a forecast, and remember fees and taxes reduce real returns.
Are deposits made at the start or end of the month?
At the end of each month. Depositing at the start would give slightly higher results because each deposit earns one extra month of interest.
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Sources and further reading
- Compound interest (Wikipedia)
- Future value (Wikipedia)
- Investor.gov: U.S. Securities and Exchange Commission investor education
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