What is compound interest
With compound interest, the interest from each period is added to the principal for the next period and starts earning interest itself — the famous "interest on interest". It's the model used by savings accounts, CDs, loans, credit cards, and most investments.
Formula
Without contributions: A = P × (1 + r)^t. With a constant periodic contribution (added at the end of each period): A = P × (1 + r)^t + C × [((1 + r)^t − 1) / r], where P is the initial principal, r is the rate per period (as a decimal), t is the number of periods and C is the contribution amount.
Example
$1,000 invested at 1% monthly for 12 months, no contributions: A = 1000 × 1.01^12 ≈ $1,126.83. With a $100 monthly contribution, the final amount would be much higher, since every new contribution also earns interest for the remaining time.
Compound interest and the effect of time
The longer the investment period, the bigger the impact of interest on interest — this is "compound interest working for you" in investments, and "against you" in debt (like credit card revolving balances, which often carry very high rates).
Frequently asked questions
Does this calculator account for monthly contributions?
Yes, optionally. If you're not making contributions, leave the field at 0 or blank.
Is the contribution applied at the start or end of each period?
At the end of each period (ordinary annuity model), which is the most common convention for this kind of simulation.
Does this calculator deduct taxes or fees?
No. The result is gross — for real investments, deductions like income tax and management fees reduce the net return.