How to use the compound interest calculator

Our compound interest calculator is simple to use. All you need to do is fill in the following fields:

• Initial deposit:The amount of money you currently have saved and will use to fund your account.

• Monthly contribution:How much money you expect to deposit into your account each month. Note that this field is optional. 

• Annual interest rate:The base (simple) interest rate that your account earns. Note: this is not the annual percentage yield (APY), which already takes compounding frequency into account.

• Investment term:The length of time your money will be kept on deposit.

• Compound frequency:How often interest is calculated and added to your balance.

What is compound interest?

Simple interest refers to the interest generated on your principal deposit only. Compound interest , on the other hand, is interest calculated on both the original principal and the interest that has already been added to your balance. Essentially, it's "interest on interest." 

Interest can compound annually, quarterly, monthly, or even daily. The more frequently interest is compounded, the faster your balance will grow.

For example, say you have a principal balance of $5,000 in a savings account that earns 4% interest. You make a contribution of $200 to the account every month. If interest compounds annually, your account would grow to $19,082 over five years. However, if interest compounds daily, you would have $19,390 after five years — an additional $8. 

What affects compound interest growth?

Compound interest is one of the most powerful tools for growing your wealth over time. However, there are several factors that can impact the effects of compound interest, including: 

• Starting balance:The more money you start with, the more interest you earn from the beginning.  

• Interest rate:A higher interest rate has one of the biggest impacts on compound growth; a savings account earning 4% APY will grow significantly faster than one earning 1% APY.

• Time invested:The longer your money is invested, the more time it has to earn interest and compound. 

• Compounding frequency:The more often interest is added to your balance, the faster your money grows. An account that compounds daily will earn slightly more than one that compounds monthly or annually (assuming they have the same interest rate).

• Regular contributions:Consistency is key to growing your savings balance. Making regular deposits can accelerate compound growth because each new contribution begins earning interest as well. 

• Fixed vs. variable interest rate:Some banking products offer fixed interest rates, while other accounts offer variable interest rates. Accounts with fixed rates may offer more stable growth over time, while accounts with variable rates can rise or fall and may impact how much interest you can earn within a certain period of time. 

How to maximize compound interest

It pays to understand how compound interest works and how to use it to your advantage to boost your savings. A few ways you can maximize your interest earnings include:

• Start saving early:The best time to start saving is now. The more time your money sits in your account, the more opportunities that balance has to compound and grow. 

• Make consistent contributions:Adding money to your account is one of the best ways to maximize the effects of compound interest, since any new money you add also begins to generate interest  

• Shop for the highest rate possible:Choosing an account with a competitive interest rate is an easy way to earn more interest on your balance. The higher your rate, the more you can expect to earn. 

• Avoid withdrawals:Of course, the point of having a savings account is to set aside money for future expenses. However, it's important to limit unnecessary withdrawals that lower your balance and cost you long-term interest earnings. 

• Watch out for fees:Some accounts charge fees, such as monthly maintenance fees and overdraft fees. Fees reduce your balance and negatively impact how much interest you earn — but they're often avoidable. Be sure to choose an account that charges few, if any, fees and ensure you understand the account's terms and conditions for avoiding penalties.