How does compound interest work?

Compound interest is interest calculated on both the initial principal and accumulated interest from previous periods. Unlike simple interest (calculated only on principal), compound interest grows exponentially. For example, $10,000 at 5% compounded annually becomes $10,500 after year 1, then $11,025 after year 2 (interest on $10,500, not just the original $10,000). The more frequently interest compounds (daily vs annually), the faster your money grows.

What's the difference between APY and APR?

APY (Annual Percentage Yield) reflects the actual annual return including compound interest, while APR (Annual Percentage Rate) is the simple interest rate without compounding. A savings account with 5% APR compounded daily has an APY of approximately 5.13%. Always compare APY when shopping for savings accounts, as it gives the true return on your money.

How often should interest compound for maximum growth?

Daily compounding provides the highest returns because interest is calculated and added to your balance 365 times per year, creating more opportunities for compound growth. The difference: $10,000 at 5% for 10 years with annual compounding = $16,289. The same amount with daily compounding = $16,487 - that's $198 more just from more frequent compounding. Many high-yield savings accounts offer daily compounding.

How much should I save each month?

Financial experts recommend the 50/30/20 rule: 50% of income for needs, 30% for wants, and 20% for savings. If you earn $5,000/month, aim to save $1,000 (20%). Start with what you can afford - even $100/month grows significantly over time. For specific goals: Emergency fund (3-6 months expenses), Down payment, Retirement supplement, Education fund. Our calculator shows how different monthly amounts grow over time.

Savings & Compound Interest Calculator

Watch your money grow with the power of compound interest and regular deposits

Savings Plan

Initial Deposit

Savings Period: 10 years

1 year40 years

Customize Your Plan

Regular Monthly Deposits

Monthly Deposit Amount$500

$0$5,000/mo

Annual deposits: $6,000

Interest Rate

Annual Interest Rate (APY)5.00%

0%15%

Typical rates:

• High-yield savings: 4-5%
• CDs: 4-6%
• Conservative investments: 5-7%
• Moderate portfolio: 7-9%
• Stock market (historical): ~10%

Annual Deposit Increase

Compounding FrequencyDefault: Monthly

Your Results

Total Savings After 10 Years

with compound interest

Total Deposits

Interest Earned

Balance Composition

Your deposits: $0

Interest earned: $0

💡 Quick Facts

✓ Saving $500 monthly

Total After 10 Years

Interest Earned