Compound Interest Explained: How Your Savings Really Grow
Compound interest is often called growth on growth, and it is the main reason long-term saving can be so powerful. This guide explains how it works in plain language.
What is the Compound Interest Calculator?
This calculator works out the future value of a lump sum that earns compound interest. It uses the formula A = P(1 + r/n) raised to the power of n times t, where P is the starting amount, r is the annual interest rate, n is how many times interest is added each year, and t is the number of years. Compounding more often means interest starts earning interest sooner, so the final amount grows faster over time.
How to use it
- Enter the starting amount you plan to invest or save.
- Enter the annual interest rate, the number of years, and how often interest is compounded.
- Press Calculate to see the final amount and the total interest earned.
Worked example
Invest 10,000 at 5% per year, compounded annually for 10 years. The tool gives a final amount of 16,288.95 and total interest of 6,288.95.
How does compound interest work?
When interest is compounded, each interest payment is added to your balance, and the next payment is calculated on that larger balance. That means your money grows a little faster each period, even if the rate never changes. Over many years, this snowball effect can turn steady saving into a much larger sum than simple interest alone would produce.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is paid only on the original amount, while compound interest is paid on the original amount plus any interest already earned, so growth speeds up over time.
Does compounding more often make a big difference?
Yes, over long periods it can add up, because interest is added to your balance sooner and then earns interest itself. Monthly compounding usually gives a slightly higher result than annual compounding at the same rate.