Free tools / Compound interest calculator
Compound interest calculator
Work out how much your capital will grow with regular contributions and compounding returns. Split into your own contributions and the interest earned.
The result is a gross figure, before capital gains tax and before inflation.
Compound interest is the mechanism by which the return from one period starts working itself and generates a further return. Over a short horizon the difference against simple interest is barely visible, but after a decade or more it is precisely that difference that accounts for most of the final balance on the account.
This calculator shows three numbers that are easy to confuse: the total of your own contributions, the total interest earned and the final value. Only by splitting the capital into those parts can you see the point at which the investment starts earning more than you are putting in yourself.
How we calculate it
The initial capital grows according to the future value formula: capital times (1 plus the periodic rate) raised to the power of the number of periods. Regular contributions are added at the end of each period and each one works for the time remaining until the end, so the first contribution grows far more than the last.
We divide the annual rate by the number of compounding periods per year. With monthly compounding the actual annual result is marginally higher than the stated nominal rate, because the interest starts compounding sooner. That difference is the effective interest rate.
What to watch out for in the results
The calculator assumes a constant rate of return, and the market does not deliver a constant rate. Treat the result as a scenario based on an assumed average, not as a forecast. It is worth running three variants: conservative, base and optimistic, and checking whether the plan still holds up in the first one.
The result is shown before tax and before inflation. You will pay capital gains tax on your returns under the rules of your own country, and inflation will erode the purchasing power of the final amount. You can work out both in our separate calculators.
Frequently asked questions
How does compound interest differ from simple interest?
With simple interest, the interest is always calculated on the initial amount and is the same every year. With compound interest it is added to the principal and in the next period generates a return of its own. The longer the horizon, the bigger the gap, and after a decade or more it is already very large.
What does more frequent compounding get you?
The more often interest is credited to the principal, the sooner it starts working. Moving from annual to monthly compounding improves the result, but the effect is modest: at 8 percent a year it is worth about 0.3 percentage points of effective rate. The level of the rate and the length of the horizon matter far more.
Does the result account for tax and inflation?
No, the calculator shows the gross nominal value. To see the amount after tax, use the tax calculator for your country. To see real purchasing power, use the inflation and real rate of return calculator.
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