Compound Interest Calculator

Last updated: August 4, 2026  ·  Reviewed by the DoCalc team

What Is Compound Interest?

Compound interest is interest calculated on both your original deposit and on all the interest that deposit has already earned. That distinction — interest earning interest — is what makes long-term growth accelerate rather than stay flat. Albert Einstein is often (probably apocryphally) credited with calling compound interest the eighth wonder of the world; whether or not he actually said it, the underlying point holds: time in the market, not just money in the market, is what drives most long-term growth.

This calculator models the two most common ways money grows over time together: a lump-sum initial deposit, plus a steady monthly contribution on top of it — the pattern most retirement accounts, savings goals, and brokerage habits actually follow.

The Formula

Where FV is the future value, P is your initial deposit, PMT is your monthly contribution, i is the monthly interest rate (annual rate ÷ 12), and n is the number of months (years × 12). The first term compounds your initial deposit; the second term — the standard future-value-of-an-annuity formula — compounds every monthly contribution, each for a slightly shorter remaining period than the one before it.

How the Two Growth Sources Interact

Your initial deposit and your monthly contributions compound differently. The initial deposit has the entire time horizon to grow, so it benefits the most from compounding, dollar for dollar. Each monthly contribution, by contrast, only compounds for its own remaining months — the first month's contribution compounds for nearly the full period, but the contribution made in the final month barely compounds at all. That's why starting with any initial deposit at all, even a small one, meaningfully boosts the long-run total compared to starting from zero with contributions alone.

Worked Example

A $5,000 initial deposit, $200/month contribution, at 7% annual return, over 20 years:

Over those 20 years, you'd have contributed $53,000 total ($5,000 initial + $48,000 in deposits) — meaning roughly $71,379, or 57% of the final balance, is interest you never directly deposited. That gap between what you put in and what you end up with is the entire point of starting early: the earlier the money is invested, the more months it has to compound.

Pros and Cons

Pros: growth accelerates over time rather than staying linear; a small early start often outperforms a much larger late start; consistent monthly contributions build the habit alongside the balance.

Cons: returns are never guaranteed the way this projection assumes — real markets fluctuate year to year even when long-run averages hold; the result isn't inflation-adjusted; fees and taxes (not modeled here) reduce real-world returns below the assumed rate.

Who Should — and Shouldn't — Use This Calculator

Use it if you want to see the long-run impact of a savings or investing habit — comparing different contribution amounts, rates, or time horizons before committing to a plan.

Skip or adjust for it if you need an exact projection for a specific account with daily compounding, fees, or a variable rate — this models the general math correctly, but real account terms will shift the precise number.

Common Mistakes to Avoid

The most common mistake is assuming a high assumed rate (like a stock market average) applies smoothly and predictably year to year — real returns are volatile, and this calculator's steady-rate projection is a simplified planning tool, not a forecast. A second mistake is forgetting the result is a nominal figure, not adjusted for inflation — a future dollar buys less than a today dollar, so the real purchasing power of the projected total is lower than the headline number suggests. A third is waiting to start "once there's more to contribute" — because compounding rewards time more than contribution size, delaying the start is usually costlier than starting small immediately.

Expert Recommendation

Run this calculator twice: once with your actual planned contribution, and once assuming you start 5 or 10 years later than planned. The gap between those two results — not the headline future-value number alone — is usually the more persuasive argument for starting now rather than waiting for a "better" time.

Frequently Asked Questions

Conclusion

Compound interest rewards time more than almost any other variable in personal finance — a smaller amount started earlier routinely outgrows a larger amount started later. The exact future-value number matters less than the shape of that growth curve, which is what this calculator is built to show.

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