What compounding does
Compound interest means you earn interest on your interest. In the first year a $10,000 balance at 6% earns $600. In the second year it earns 6% on $10,600, and so on, so the yearly gain keeps rising even if you never add a cent. Add regular monthly deposits and each deposit starts its own small snowball.
Future value = P(1 + r/n)^(nt) + monthly deposits grown the same way
With $10,000 to start, $500 a month and 6% for 20 years, you would end with about $264,000. Your own money accounts for $130,000 of that, and interest supplies the rest. Notice in the bars how the balance curves upward: the last five years add more than the first ten.
Does compounding frequency matter?
Banks quote different compounding periods, and more frequent compounding does give slightly more, but the difference is small. At 6%, yearly compounding gives an effective 6.00%, monthly gives 6.17% and daily gives 6.18%. The rate itself and the number of years matter far more than the schedule.
For investments like index funds there is no stated compounding at all; returns arrive unevenly as prices move. Using monthly compounding with an average return is a reasonable way to model them.
Common questions
How much is $10,000 after 20 years with compound interest?
At 6% compounded monthly, about $33,100 without further deposits. At 8% it is about $49,300.
What is the difference between APR and APY?
APR is the stated yearly rate. APY includes compounding, so it is the rate you actually earn. Our "effective yearly rate" row is the APY.
How do I make compound interest work faster?
Start early, deposit regularly, keep fees low and avoid withdrawing growth.
This calculator gives estimates for planning. Real returns, rates and prices change, so treat the result as a guide rather than a promise. Read how we build and check our calculators.