Simple interest versus compound interest
Simple interest is calculated only from the starting principal. Compound interest adds interest to the balance, so later periods can earn interest on earlier interest as well. The difference becomes more noticeable as the rate, compounding frequency, or time increases.
How compound interest is calculated
For a lump sum, the calculator applies the periodic rate to the balance for each compounding period. When recurring contributions are entered, each contribution is treated as an ordinary payment made at the end of its period. That timing matters: deposits made at the beginning of each period would produce a different result.
What APY means
Annual percentage yield expresses the effective annual growth produced by a nominal annual rate after compounding. Two accounts with the same nominal rate can have different APYs if they compound at different frequencies.
Recurring contributions
The contribution field is per compounding period. With monthly compounding it represents a monthly contribution; with quarterly compounding it represents a quarterly contribution. Keep the contribution frequency aligned with the selected compounding frequency.
Important assumptions
Rates are treated as fixed nominal annual rates, compounding occurs at the selected frequency, and contributions occur at the end of each period. Taxes, account fees, rate changes, inflation, market losses, and irregular deposit timing are not included.
Frequently asked questions
Can I calculate a 0% rate?
Yes. At a 0% rate the future value is the starting principal plus any recurring contributions.
Why might a bank or investment statement differ?
Real products can use daily balance methods, different day-count conventions, fees, taxes, variable rates, or different contribution timing.
Is this investment advice?
No. It is a mathematical planning estimate and not financial, tax, or investment advice.