Compound Interest Calculator
Calculate how an initial investment and regular contributions could grow over time with compound interest. Enter your starting balance, contribution amount, interest rate, compounding frequency and investment term to estimate your final balance and total interest earned.
Investment Details
Enter your assumptions below to estimate compound growth.
Interest Rate Comparison
Compare the estimated final balance if the annual return is two percentage points lower or higher.
Compound Interest Growth Schedule
The table below shows the estimated balance, contributions and compound interest at the end of each year.
| Year | Opening Balance | Contributions | Interest Earned | Closing Balance |
|---|
How to Use the Compound Interest Calculator
Enter your starting investment, expected annual interest rate and the number of years you plan to invest.
If you intend to make regular contributions, enter the contribution amount and select whether those contributions are monthly, quarterly or yearly.
The calculator estimates:
- Final investment balance;
- Total amount contributed;
- Total compound interest earned;
- Percentage investment growth;
- Contribution versus interest breakdown;
- Year-by-year investment growth; and
- The effect of different interest-rate assumptions.
What Is Compound Interest?
Compound interest is interest earned not only on the original amount invested but also on interest that has already accumulated.
This means investment growth can accelerate over time because each future interest calculation can be based on a larger balance.
If $10,000 earns 5% in the first year, the balance becomes $10,500. If another 5% is earned the following year, the interest is calculated on $10,500 rather than only the original $10,000.
Compound Interest Formula
For an investment without regular contributions, the standard formula is:
Where:
A = future value
P = initial principal
r = annual interest rate as a decimal
n = number of compounding periods per year
t = number of years
Compound Interest Example
Assume:
- Initial investment: $10,000
- Annual return: 7%
- Investment term: 10 years
- Compounding: Monthly
- Monthly contribution: $500
The calculator combines the compound growth of the initial investment with the growth of each additional contribution to estimate the final balance.
Why Does Compounding Frequency Matter?
Compounding frequency determines how often interest is added to the investment balance.
Common compounding frequencies include:
- Annual;
- Quarterly;
- Monthly; and
- Daily.
When the quoted annual interest rate is the same, more frequent compounding can produce a slightly higher effective return because interest is added to the balance sooner.
Monthly vs Annual Compounding
With annual compounding, interest is applied once each year. With monthly compounding, the annual rate is divided into monthly periods and interest is added 12 times per year.
The difference can be relatively small over short periods, but it can become more noticeable over longer investment terms.
Why Regular Contributions Matter
Regular investing can have a significant effect on long-term wealth because each contribution has the potential to earn returns for the remaining investment period.
For example, contributing $500 every month equals:
Over 10 years, that represents $60,000 of additional contributions before investment returns are considered.
Contribution Timing: Beginning vs End of Period
This calculator lets you choose whether regular contributions are made at the beginning or end of each contribution period.
End of period
This is similar to an ordinary annuity. Each contribution begins earning returns after it is deposited at the end of the period.
Beginning of period
This is similar to an annuity due. Contributions are invested earlier and therefore generally have slightly more time to compound.
What Is the Difference Between Simple and Compound Interest?
Simple interest
Simple interest is calculated only on the original principal.
Compound interest
Compound interest is calculated on the original principal plus previously accumulated interest.
Over long periods, the difference can become substantial.
What Is the Rule of 72?
The Rule of 72 is a rough mental shortcut used to estimate how long an investment may take to double at a particular annual return.
For example:
At an estimated return of 8%:
72 ÷ 8 ≈ 9 years
The Rule of 72 is only an approximation and does not replace a detailed compound-interest calculation.
Compound Interest and Inflation
An investment can grow in nominal dollar terms while the purchasing power of those dollars is also affected by inflation.
For example, an investment earning 7% when inflation averages 3% does not necessarily increase purchasing power by the full 7%.
To examine purchasing power separately, use the Inflation Calculator Australia.
Compound Interest and Investment Returns
The annual interest or return rate entered in this calculator is an assumption.
Real investments can produce returns that vary from year to year. Shares, managed funds, property and other growth investments do not normally deliver a guaranteed constant annual return.
The rate-comparison feature therefore lets you compare different assumptions rather than relying on one single projection.
Does This Calculator Include Tax?
No. Investment tax can depend on the type of investment and the investor’s circumstances.
This calculator does not automatically include:
- Income tax;
- Capital gains tax;
- Dividend taxation;
- Franking credits;
- Superannuation tax;
- Investment fees; or
- Transaction costs.
Does This Calculator Include Investment Fees?
No. Management fees, platform fees, brokerage, advice fees and other investment costs can reduce actual returns.
If you expect investment costs to reduce your return, you can model their approximate effect by entering a lower net annual return.
How Long Should I Invest for Compound Growth?
Compound growth becomes increasingly powerful over longer periods because returns have more time to generate additional returns.
However, the appropriate investment period depends on your goals, risk tolerance, liquidity needs and investment strategy.
Compound Interest Calculator Assumptions
This calculator assumes:
- The annual return entered remains constant;
- The selected compounding frequency remains constant;
- Regular contributions remain the same;
- Contributions are made at the selected frequency;
- No withdrawals occur;
- No tax is deducted;
- No investment fees are deducted;
- No inflation adjustment is applied;
- Returns are reinvested; and
- Results are mathematical projections rather than guaranteed investment outcomes.
Related Finance Calculators
Compound Interest Calculator FAQs
What is compound interest?
Compound interest is interest earned on both the original principal and previously accumulated interest.
How do I calculate compound interest?
For a lump sum, a common formula is A = P(1 + r/n)^(nt), where P is principal, r is the annual rate, n is the number of compounding periods per year and t is time in years.
Is monthly compounding better than annual compounding?
At the same quoted annual rate, more frequent compounding can produce a slightly higher effective return because interest is added to the balance more frequently.
Does the calculator include regular contributions?
Yes. You can add monthly, quarterly or yearly contributions and choose whether they are made at the beginning or end of each period.
Does this calculator include tax or investment fees?
No. Results are before tax, investment management fees, brokerage and other costs unless those costs are reflected in the annual return you enter.
Are compound interest results guaranteed?
No. The calculator produces a mathematical projection based on the rate entered. Actual investment returns can vary and may be negative.
What is the Rule of 72?
The Rule of 72 is a rough shortcut for estimating the number of years required for an investment to double. Divide 72 by the assumed annual percentage return.