How to use the compound interest calculator
Initial deposit
This is the starting amount of money you plan to deposit into savings. This will be the base amount the compound interest is calculated on.
Regular deposit
This is the amount of money you plan to deposit regularly.
Deposit frequency
How often you plan to make regular deposits into your savings account. If you have created a budget plan and put aside a regular amount to deposit into savings, you can select the relative frequency option here.
Compound frequency
How often interest is applied to your savings. Depending on the type of savings account (or term deposit) you are using, this will be monthly or annually.
Number of years
How long you plan to keep your initial deposit and regular deposits untouched in your savings account for.
Interest rate
This is the interest rate applied to your savings. Check the details of your savings account with your bank to understand how interest rates may change over time, or whether they are fixed for a set period.
Once you have entered the details about your estimated savings, you can click See My Savings to see how much you will gain through interest each year, including the total balance of your savings over the period.
Compound interest formula
The formula for compound interest on a single deposit is: a = d ((1 + ( r / n )) ^ (n * p))
- a — the amount of money you will have at the end of the deposit period
- d — your initial deposit
- r — the annual interest rate expressed as a decimal
- n — the number of compounding periods per year — e.g. monthly = 12
- p — the number of years your money will be in savings and you will accrue interest
Keep in mind that this is a simple formula, and when calculating the compounding interest on an amount which includes a frequent deposit, you’ll need to alter the way you calculate the interest.
This is because your compounding interest will be calculated at the beginning of the deposit period, where interest is added to the initial amount plus any deposits.
For example:
You deposit $10,000 for a fixed term and make regular deposits of $1,000 each month. The compounding interest is 5.00% and calculated annually, so for your first year, the amount of interest will only be $500 — where 5 per cent of 10,000 is 500. The total amount at the end of that year in your account will be 10,000 plus interest (500) plus your deposits (12,000), so the total amount will be $22,500.
For the next year, the 5.00% interest will be applied to the starting amount (22,500) so your interest will be $1,125. The total amount at the end of the second year will be the starting amount (22,500) plus the interest (1,125) plus the deposits (12,000), so your total amount at the end of the second year will be $35,625.
Compound interest example calculation
Let’s see how compound interest works in a simple example on a single deposit. We’ll use a $10,000 deposit earning 5% interest compounded monthly. You plan to leave the money untouched for 5 years.
- a = d ((1 + ( r / n )) ^ (n * p))
- a = 10000 * ((1 + (.05 / 12)) ^ (12*5))
- a = 10000 * (1.00416666667) ^ (60)
- a = 10000 * (1.28335867876)
- a = 12,833.59
- Total amount in savings = $12,833.59
- Interest Earned is (a - d). In this example, that would be 12,833.59 - 10,000 = 2,833.59
- Interest Earned = $2,833.59
If you want to quickly calculate the amount of interest you’ll earn on your savings deposit without creating your own spreadsheet with the above calculations, you can use our free compound interest calculator.
Example of compound interest on deposits
| Opening amount | 2 years | 5 years | 10 years |
|---|---|---|---|
$2,000 | $210 | $567 | $1,294 |
$5,000 | $525 | $1,418 | $3,238 |
$10,000 | $1,050 | $2,836 | $6,475 |
$15,000 | $1,575 | $4,254 | $9,714 |
$20,000 | $2,100 | $5,671 | $12,951 |
$25,000 | $2,626 | $7,090 | $16,191 |
$30,000 | $3,151 | $8,508 | $19,430 |
$40,000 | $4,201 | $11,344 | $25,905 |
$50,000 | $5,251 | $14,180 | $32,380 |
