How the Compound Interest Calculator works

The formula

Step by step

1. The annual return rate is divided by 12 and applied to the balance each month.
2. Contributions are added at the end of each period (an ordinary annuity), then the next month's growth is applied to the new balance.
3. Future value = your compounded starting amount plus the future value of the contribution stream.
4. Total growth = future value − everything you contributed (principal + all contributions).
5. A worked example using the calculator's own defaults: $10,000 to start, $500 a month, 7% a year, 30 years. The result is $691,150. You put in $190,000 — the $10,000 plus 360 payments of $500 — so $501,150 of it is growth. The opening $10,000 on its own would have become $81,165; everything above that came from the contribution stream.
6. Contribution timing is worth more than it looks. Paying the same $190,000 in as $6,000 once a year instead of $500 a month ends at $671,827 — $19,324 less on identical money, purely because each annual lump sits out an average of five and a half months of compounding.
7. The rate you enter is treated as a NOMINAL annual rate divided by twelve, not an effective one. Enter 7% and the balance grows at 0.5833% a month, which compounds to 7.229% over a year. A bank advertising 7% APY is quoting the effective figure already, so typing it here overstates the result slightly.

Assumptions & limitations

• A constant annual return — real markets fluctuate and can lose money.
• Nominal, pre-tax figures; taxes and inflation are not deducted.
• Monthly compounding regardless of the contribution frequency you pick.
• The horizon is rounded to whole years before anything else happens, so 10.6 years and 11 years return the same $120,544. The engine cannot model a partial final year, and it rounds rather than truncating.
• The contribution frequency changes WHEN money lands, never how often growth is applied. Growth is always monthly — choosing 'annual' means one deposit at the end of month 12, 24, 36, not a switch to annual compounding.
• A negative return is accepted and compounds downward: −5% a year for ten years turns $10,000 into $6,059. Nothing floors the balance at what you paid in, so a projection can end below its own contribution line.