Interest becomes part of the next balance
Simple interest is calculated only on the starting principal. Compound interest adds each period’s interest to the balance, so later interest can also be earned on earlier interest.
In the formula, P is the initial principal, r is an annual decimal rate, n is the number of compounding periods per year, and t is time in years.
Match the rate and the number of periods
For a nominal annual rate compounded monthly, divide the annual decimal rate by 12 and use 12t periods. Do not use the annual rate unchanged for every month.
The calculator supports yearly, twice-yearly, quarterly, monthly and daily compounding. The comparison assumes the same stated nominal rate, not necessarily the same effective annual yield.
Read the projection as a model
The tool assumes a constant rate with no added contributions, withdrawals, fees or taxes. Inflation is not included. A real account with changing rates or timed cash flows can follow a different path.
Subtract the initial principal from the final balance to find modeled interest earned. Retain unrounded intermediate values and round the displayed money amount only at the end.
LET’S WORK IT THROUGH
A principal of 2,000 grows at 5% per year, compounded yearly for two years. Find the balance.
- The annual multiplier is 1.05.
- After one year: 2,000 × 1.05 = 2,100.
- After two years: 2,100 × 1.05 = 2,205.
THE ANSWERBalance 2,205; modeled interest 205.
YOUR TURN
A small check for understanding.
At zero interest, what happens to a principal of 500 after ten years?
Reveal the answer
It remains 500 under this no-contribution model.
Now try your own numbers.
The compound interest includes input guidance and the limits of its supported calculations. Use it alongside the method above.
Open Compound interest ↗A note on precision: preserve exact fractions where possible and round numerical results at the end. Found an unclear step? Prepare a correction report.