Compound Interest Guide

How compounding, contributions, rate and time affect growth.

Compound interest means that interest or investment growth is added to the balance and can itself earn further growth. Over long periods, this compounding effect can become much larger than simple interest on the original amount alone.

The main inputs

A typical compound-interest calculation uses a starting balance, an annual rate, a compounding frequency and a time period. Some scenarios also include regular contributions. The frequency matters because interest can be added monthly, quarterly, annually or at another interval.

Example without additional contributions

If €1,000 grows at an assumed 5% annual rate compounded annually for one year, the balance becomes €1,050. In a longer period, the next year's growth is calculated on the larger balance rather than only on the original €1,000.

Regular contributions change the result

Adding money regularly means future growth can apply to both the original balance and earlier contributions. The exact result depends on when contributions are made and how the calculation treats the timing of each contribution.

Important limitation

A calculator can model an assumed rate, but it cannot predict a guaranteed investment return. Real investments may have fees, taxes, variable returns and periods of loss.

Use the calculator

Try the Compound Interest Calculator to compare different rates, periods and contribution assumptions.