How compound interest is estimated

The rate is split into compounding periods

You enter an annual percent. The calculator divides that percent by the number of periods in a year: 1 for annual, 4 for quarterly, 12 for monthly, or 365 for daily. Each time interest posts, the balance is multiplied by one plus that periodic rate.

Interest for a period uses the balance at the start of that period. A contribution that arrives later in the period does not earn interest until the next posting. Daily compounding uses a 365-day year and does not insert a leap day. A monthly contribution is added on one day in each month. A yearly contribution is added once in the year. The rate is not looked up from a bank or a market index.

Contributions can come before or after interest

The default adds the contribution after interest when it lands on a posting date. More options can add it before interest instead. A contribution that arrives after interest, or between posting dates, does not earn interest until the next posting. The growth percent raises the contribution at the start of each later year and leaves the first year at the amount you typed.

The example on this page uses the calculator’s default starting balance, monthly contribution, rate, and 20-year term. Those figures are an illustration of the schedule. They are not a quote for an account.

What the balance leaves out

The ending balance is the starting balance, plus the contributions, plus the interest from this schedule. Taxes, account fees, inflation, and a change in an investment price are not calculated. A higher rate raises the result in the model. It does not mean an account will credit that rate.

The frequency tiles keep the deposits and the rate the same and change only how often interest posts. A more frequent schedule can raise the ending balance. The difference is the posting rule, not a prediction that one account will beat another.

Needs review before launch. Taxes on interest and investment gains are not calculated.

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Related guides

• How rental cash flow is estimated
• How mortgage payments are calculated
• How retirement savings are projected

Read the methodology

Written to explain how this site’s calculators work. Not a review by a licensed mortgage professional, and not a recommendation to borrow. These notes are not financial, tax, or legal advice.