How does compound interest work?

Compound interest is interest calculated on the initial principal plus all accumulated interest from previous periods. It grows faster than simple interest because you earn "interest on interest".

What is the difference between annual and monthly compounding?

Monthly compounding calculates interest 12 times per year, while annual compounding calculates once per year. More frequent compounding results in higher returns. For example, $10,000 at 5% for 10 years: monthly = $16,470, annual = $16,289.

How do I calculate compound interest?

Use the formula A = P(1 + r/n)^(nt). For $10,000 at 5% annually for 10 years: A = 10,000(1 + 0.05/1)^(1×10) = $16,289. Interest earned = $16,289 - $10,000 = $6,289.

What compounding frequency is best?

More frequent compounding yields higher returns. From best to worst: daily, monthly, quarterly, semi-annually, annually. However, the difference between daily and monthly is usually minimal.

Compound Interest Calculator

Calculate compound interest with different compounding frequencies. See how your investment grows over time with detailed breakdown.

Calculate

Principal ($)

Annual Interest Rate (%)

Years

Compounds per Year

Formula

A = P(1 + r/n)^(nt) where A=final amount, P=principal, r=rate, n=compounds per year, t=years

Example

principal:10000

rate:5

years:10

compounds:12

final Amount:16470.09

interest:6470.09

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