Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only applies to the principal, compound interest grows exponentially over time — often described as "interest on interest". The more frequently interest compounds, the faster the balance grows.

1. Enter your initial principal (starting amount).
2. Enter the annual interest rate.
3. Select how often interest compounds.
4. Enter the time period in years.
5. Optionally enter a regular contribution per period.
6. Click Calculate.

$10,000 at 7% p.a. compounded monthly for 10 years with $100/month contributions.
Future value ≈ $37,400 | Interest earned ≈ $15,400 | Total contributions ≈ $22,000

The gap between total contributions and future value is the interest earned — this is the compounding effect. The longer the time horizon and the higher the rate, the more dramatic this effect becomes. Starting early, even with small amounts, has a disproportionately large impact on the final balance.

• Confusing nominal and effective annual rates — the effective rate is higher when compounding is more frequent than annually.
• Ignoring inflation — real returns are lower than nominal returns.
• Underestimating the impact of fees on long-term investment growth.

What is the difference between compound and simple interest?

Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus all previously earned interest, causing the balance to grow faster over time.

How does compounding frequency affect the result?

More frequent compounding (e.g. daily vs annually) produces a slightly higher return because interest is added to the balance more often, and that interest then earns interest sooner.

What does the regular contribution represent?

It represents a fixed amount added at each compounding period — for example, $100/month if compounding monthly. This models regular savings or investment contributions.