How Compound Interest Works
A plain-English explanation of compounding plus a live calculator to see it in action.
Runs locally in your browser — your numbers never leave this pageTry: Starting principal=1000, Annual interest rate=5, Compounding=12, Years=20, Monthly contribution=0, Annual inflation=0 → $2,712.64, $1,000.00, $1,712.64
How to use
Compound interest is often called the eighth wonder of the world because growth accelerates over time. Year one, you earn interest on your deposit. Year two, you earn interest on the deposit and on last year’s interest. Over decades this gap widens dramatically, which is why starting to save early — even with small amounts — beats waiting and investing a lump sum later.
Compound interest is interest earned on prior interest. Enter your starting principal, the annual rate, and how often it compounds (daily, monthly, and so on). Add a monthly contribution to model regular saving. The calculator reports the final balance, total interest, and — if you enter inflation — the real purchasing power of that balance.
FAQ
What does compounding frequency change?
More frequent compounding (daily beats annual) gives a slightly higher balance because interest starts earning interest sooner. The difference is small at low rates but grows over long periods.
Why add a monthly contribution?
Regular saving is usually the biggest driver of long-term growth. The calculator treats it as an ordinary annuity added each month.
What is the inflation-adjusted value?
It divides the final balance by (1 + inflation)^years to show what that money could actually buy then, stripping out price rises.