How it works
Compound interest means you earn interest on your previous interest, not just on what you deposited. Over long periods this snowball effect usually ends up larger than your contributions.
Contributions are added at the end of each month. Compounding frequency sets how often interest is credited; the calculator converts it to an equivalent monthly rate so deposits and interest line up.
More frequent compounding helps a little (daily vs annual at 7% is about 7.25% vs 7.00% effective), but time and contribution size matter far more.
Formula
A = P(1 + r/k)^(kt) + C × ((1 + i)^(12t) − 1) ÷ i, where i = (1 + r/k)^(k/12) − 1 is the equivalent monthly rate
Questions people ask
What is the difference between APR and APY?
APR is the stated annual rate. APY (or effective annual yield) includes the effect of compounding within the year, so it is higher whenever interest compounds more than once a year.
How much does compounding frequency matter?
Less than people expect. At 5%, annual compounding yields 5.00%, monthly 5.12% and daily 5.13%. The rate and the number of years matter much more.
Are investment returns really compound interest?
Reinvested dividends and gains compound in a similar way, but stock returns vary year to year. A steady rate here is an average, not a guarantee.