How to Calculate Compound Interest (With Examples)
Updated June 2026
See how savings grow over time.
Compound interest is interest earning interest — the engine behind long-term savings and investing. Here's the formula and a clear example.
The formula
A = P × (1 + r ÷ n)n × t
- A = final amount
- P = principal (starting amount)
- r = annual interest rate (as a decimal, e.g. 0.05)
- n = times interest compounds per year
- t = number of years
Worked example
Invest $1,000 at 5% compounded monthly (n = 12) for 10 years:
A = 1000 × (1 + 0.05 ÷ 12)12 × 10 = 1000 × (1.004167)120 ≈ $1,647.
You earned $647 in interest — and $647 minus the $500 you'd get from simple interest is the compounding bonus.
Why frequency matters
The more often interest compounds, the more you earn. The same $1,000 at 5% for 10 years grows to about $1,629 compounded annually, but $1,648 compounded daily. Small gap here, but it widens with bigger sums and longer time.
The real lesson: time
Compounding rewards time more than anything. Starting five years earlier often beats contributing more later. Use the calculator below to see how your numbers grow.
See how savings grow over time.
Frequently asked questions
What's the difference between simple and compound interest?
Simple interest is earned only on the principal. Compound interest is earned on the principal plus all previously earned interest, so it grows faster over time.
Does adding monthly contributions change the formula?
Yes — regular contributions add a second term. The calculator handles principal and recurring deposits together.