Compound Interest Calculator

Two accounts advertising the same rate can pay different amounts, and the reason is how often interest is credited. This calculator lets you vary that frequency and reports the effective annual rate so the comparison is like for 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 is worth 9.57. The gains flatten fast, and past monthly compounding the frequency is close to a marketing detail. What is not a detail is the gap between the nominal rate and the effective one — 8% compounded monthly is 8.30% a year, and that is the figure to use when comparing 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.

Reading the multiple, not just the balance

The result also gives you the growth multiple. At 8% compounded monthly, five years turns money into 1.49x, twenty years into roughly 4.9x. Compounding is not linear in time, and the intuition that four times the years gives four times the growth is exactly the intuition that makes long horizons feel unremarkable when they are not.

This models a lump sum and nothing else

The single most important limitation: there is one deposit at the start, and it is left alone. No further contributions, no withdrawals, no partial redemptions. The lump sum calculator that used to live on its own page now redirects here, because it was computing this exact formula.

If you are adding money every month, this page will understate your outcome badly 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 is 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; market returns do not 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 will not achieve this.

Where a provider gives you an illustration, theirs is the number to trust — it will include the charges this page cannot 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. For regular monthly contributions rather than a single sum, use the SIP calculator.