Compound Interest Calculator

Two accounts advertising the same rate can pay different amounts, because of how often each one credits interest. This calculator lets you vary that frequency and shows the effective annual rate, so you're comparing like with like.

The same 8%, five ways

A 5,000 lump sum at 8% for five years, changing only the compounding frequency:

Moving from annual to monthly is worth 102.59 over the term. Moving from monthly to daily adds just 9.57. The gains flatten out fast, and beyond monthly compounding the frequency is close to a marketing detail. The gap between the nominal rate and the effective one does matter, though: 8% compounded monthly is 8.30% a year, and that's the figure to use when you compare it against anything else.

A = P × (1 + r/n)^(n × t)
Effective annual rate = (1 + r/n)^n − 1

Here n is the number of compounding periods in a year: 1, 2, 4, 12 or 365 in the frequency selector.

Look at the multiple as well as the balance

The result also gives you the growth multiple. At 8% compounded monthly, five years turns money into 1.49x and twenty years into roughly 4.9x. Compounding isn't linear in time. The instinct that four times the years should give four times the growth is exactly what makes long horizons feel unremarkable, when they're anything but.

This models a lump sum and nothing else

The biggest limitation is that there's one deposit at the start and it's left alone after that. There are no further contributions, withdrawals or partial redemptions. The lump sum calculator that used to have its own page now redirects here, because it was computing this exact formula.

If you're adding money every month, this page will badly understate your outcome, and you want a contribution model instead.

Excluded costs that change the answer

• Fees. An annual management charge is deducted from the balance, not from the rate you entered. A 1% charge on an 8% gross return leaves you compounding at roughly 7%, and over twenty years that difference is enormous.
• Tax. Interest taxed as it's credited compounds on the post-tax amount. The projection compounds on the gross.
• Rate stability. A constant rate for the whole period is a modelling assumption. Deposit rates reset, and market returns don't exist as a fixed number at all.
• Reinvestment. The formula assumes every credit is reinvested at the same rate. A bond paying coupons into a low-rate cash account won't achieve this.

If a provider gives you an illustration, trust their number over this one. It will include the charges this page can't see.

Further reading on this site

To compare against interest that never compounds, use the simple interest calculator. For a bank deposit fixed at quarterly compounding, use the FD calculator. If you're putting in a regular monthly amount instead of a single sum, use the SIP calculator.