Compound Interest Calculator

What compound interest actually means

Simple interest pays only on your original balance. Compound interest pays on your balance plus everything already earned, so each period your earnings start earning too. That feedback loop is why a long holding period matters more than a high balance.

The core relationship is FV = PV × (1 + i)^n for a lump sum, where i is the effective rate per period and n is the number of periods. Add regular contributions and each of them compounds for a different length of time — the earliest ones do the heaviest lifting.

Time horizon beats contribution size more often than most people expect. Someone who invests for 30 years usually ends up with more than twice what someone investing the same amount for 15 years ends up with — even though the first person only put in twice as much money.

APY versus nominal rate

The rate a bank advertises is the nominal annual rate. The amount you actually earn in a year is the APY, which accounts for how often interest is added to your balance. A 5% nominal rate compounded monthly gives an APY of about 5.12%; compounded daily it is about 5.13%.

When you compare two accounts, always compare APYs rather than nominal rates, because accounts with the same advertised rate but different compounding schedules are not equal.

Why the inflation-adjusted number matters

A projection that ignores inflation describes a bigger number than the one you can actually spend. This calculator discounts your ending balance back to today’s purchasing power using the inflation rate you enter, which is the only honest way to judge whether a savings target is realistic.

Historically, a diversified portfolio has returned somewhere around 6% to 8% a year in nominal terms, with roughly 2% to 3% lost to inflation — so the real growth is typically closer to 4% to 5%.

Practical ways to use this tool

Try these scenarios to build intuition about the mechanics:

• Add a yearly contribution increase of 3% to model raises that track inflation.
• Switch the frequency to "Every 2 weeks" if you are paid biweekly — 26 half-contributions a year add up to slightly more than 12 monthly ones.
• Set the expected return to zero to see how much of your ending balance comes purely from discipline rather than market growth.
• Compare monthly versus quarterly compounding on the same nominal rate to see why the fine print is worth reading.