What is compound interest?

Interest is calculated on principal plus previously earned interest. Over time this creates exponential growth compared with simple interest.

How often should interest compound?

More frequent compounding (e.g. monthly vs annually) slightly increases effective yield for the same nominal annual rate.

See how principal grows with compound interest. Choose compounding frequency and optional contributions each period to model savings or investments.

Project growth with compound interest and optional regular contributions

Starting principal

Annual interest rate

Years

Contribution per period

Compounding frequency

Contribution is applied once per compounding period (e.g. monthly when compounding monthly).

Result

$31,998.32

Interest earned $9,998.32 · Contributed $22,000.00

FV = P(1+r/n)^(nt) + PMT × [((1+r/n)^(nt)−1) ÷ (r/n)]

Final balance

$31,998.32

Total contributed

$22,000.00

Interest earned

$9,998.32

120 compounding periods

See how principal grows with compound interest. Choose compounding frequency and optional contributions each period to model savings or investments.

Example calculations for Compound Interest
Question	Answer
$10,000 at 5% for 10 years (monthly)	About $16,470 without contributions
$10,000 + $100 per period at 5%	Higher balance from contributions + interest
$5,000 at 7% for 20 years annually	About $19,348

Goal	Formula
Future value (no PMT)	P(1 + r/n)^(nt)
With contributions	P(1+r/n)^(nt) + PMT × [((1+r/n)^(nt) − 1) ÷ (r/n)]

What is compound interest?: Interest is calculated on principal plus previously earned interest. Over time this creates exponential growth compared with simple interest.
How often should interest compound?: More frequent compounding (e.g. monthly vs annually) slightly increases effective yield for the same nominal annual rate.

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