What Is Compound Interest?
Compound interest is interest calculated on both the original principal and the interest that has already accumulated. The more frequently interest compounds — annually, quarterly, monthly or daily — the faster a balance grows, all else being equal.
Worked examples
Formula / Calculation Method
How to Use This Tool
- Enter the principal amount you're investing.
- Enter the annual interest rate.
- Enter the time period in years.
- Choose how often interest compounds, then click Calculate.
Common Use Cases
Nominal rate versus annual yield
Enter a nominal annual interest rate. The model divides it by the selected number of compounding periods per year. Do not enter an already-compounded annual percentage yield and then compound it again: use annual frequency if you are treating that yield as the effective annual growth assumption.
Model limits
This calculation starts with one deposit, reinvests all interest, and holds the rate constant. It excludes contributions, withdrawals, tax, inflation, fees, and changing rates. Daily means 365 periods per year, including when the calendar contains a leap day; it is not a bank-specific day-count convention.
Fractional years use the same exponential growth formula for a fraction of a period. An actual account may credit interest only on specified dates. Use the SIP Calculator for regular monthly deposits, and verify a savings product’s compounding and rounding terms before comparing its advertised return.