Compound Interest Calculator
Calculate compound interest with different compounding frequencies and compare daily, monthly, quarterly, and annual compounding
Monthly Compounding Results
Compounding Frequency Comparison
Year-by-Year Growth by Compounding Frequency
| Year | Daily | Monthly | Quarterly | Annually |
|---|---|---|---|---|
| 1 | $10,618 | $10,617 | $10,614 | $10,600 |
| 2 | $11,275 | $11,272 | $11,265 | $11,236 |
| 3 | $11,972 | $11,967 | $11,956 | $11,910 |
| 4 | $12,712 | $12,705 | $12,690 | $12,625 |
| 5 | $13,498 | $13,489 | $13,469 | $13,382 |
| 6 | $14,333 | $14,320 | $14,295 | $14,185 |
| 7 | $15,219 | $15,204 | $15,172 | $15,036 |
| 8 | $16,160 | $16,141 | $16,103 | $15,938 |
| 9 | $17,159 | $17,137 | $17,091 | $16,895 |
| 10 | $18,220 | $18,194 | $18,140 | $17,908 |
About This Tool
A compound interest calculator shows how your money grows when interest is calculated not just on your principal, but also on previously earned interest. The frequency of compounding - how often interest is calculated and added to your account - significantly impacts your returns. Understanding compound interest and compounding frequency is essential for maximizing savings and investment growth.
How Compound Interest Works
Compound interest means "interest on interest." When you earn interest, that interest is added to your principal, and then your next interest calculation is based on the new, larger balance. This creates exponential growth rather than linear growth. For example, with $10,000 at 6% compounded annually: Year 1 you earn $600 (6% of $10,000), giving you $10,600. Year 2 you earn $636 (6% of $10,600), not just $600. This snowball effect accelerates over time, which is why Einstein allegedly called compound interest "the most powerful force in the universe."
Understanding Compounding Frequency
Compounding frequency is how often interest is calculated and added to your balance. Common frequencies include: annually (once per year), quarterly (4 times per year), monthly (12 times per year), daily (365 times per year), and continuous (theoretical maximum). More frequent compounding means more opportunities for your interest to earn interest, resulting in higher returns. However, the difference between frequencies becomes less dramatic as you compound more often. The jump from annual to monthly compounding is significant, but the difference between daily and continuous is minimal.
The Impact of Compounding Frequency
Using $10,000 at 6% for 10 years: annually compounded grows to $17,908, monthly to $18,194, and daily to $18,221. The difference between annual and daily is $313 - that's "free money" just from more frequent compounding! For larger amounts or longer periods, this difference grows. With $100,000 over 30 years at 6%, annual compounding yields $574,349 while daily yields $602,257 - a difference of nearly $28,000. Most savings accounts compound daily, while bonds typically compound semi-annually. Always check the compounding frequency when comparing investment options.
Maximizing Compound Interest
To maximize compound interest: start early (time is your greatest advantage - every year counts), choose accounts with more frequent compounding when rates are equal, avoid withdrawing your earnings (let them compound), make regular additional contributions to accelerate growth, and compare APY (Annual Percentage Yield) rather than APR when shopping for accounts - APY accounts for compounding while APR doesn't. For retirement savings, the difference between starting at 25 versus 35 can be hundreds of thousands of dollars, purely due to compound interest over those extra 10 years.