Compound interest calculator

How it works

Compound interest uses A = P × (1 + r ÷ n)^(n × t): P is the starting amount, r the annual rate as a decimal, n how many times a year interest is added and t the number of years. Each period's interest is added to the balance, so the next period earns interest on it too. More frequent compounding gives a slightly higher result for the same annual rate. The tool also shows what simple interest would give, so the difference compounding makes is visible. It assumes the rate never changes, no money is added or withdrawn and interest is reinvested.

Worked example

5,000 at 4% a year for 10 years, compounded monthly: A = 5,000 × (1 + 0.04 ÷ 12)^(12 × 10) = 7,454.06, so the interest is 2,454.06. Simple interest on the same figures would give 5,000 + 5,000 × 0.04 × 10 = 7,000, which is 454.06 less.

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