Quick answer: 10,000 at 5% a year compounded monthly grows to 16,470.09 in 10 years; adding 100 a month brings the balance to 31,998.32.
How it's calculated
For a lump sum, A = P(1 + r/m)^(m·t): P is the starting amount, r the annual rate, m the number of compounding periods a year and t the years. With continuous compounding, A = P·e^(r·t).
Monthly deposits are added at the end of each month and grow at the monthly equivalent of the effective annual rate, so the result is correct whatever the compounding frequency.
The effective annual rate (EAR) shows what the rate is worth after a full year of compounding: 5% compounded monthly is 5.116% a year. Use it to compare offers that compound differently. For savings without growth on growth, see the simple interest calculator.
Worked examples
- 10,000 at 5%, monthly, 10 years, no deposits: 10,000 × (1 + 0.05/12)^120 = 16,470.09
- Same, compounded annually: 10,000 × 1.05^10 = 16,288.95
- 10,000 plus 100 a month, 5% monthly, 10 years: = 31,998.32 (12,000 deposited, 9,998.32 interest)
Frequently asked questions
How often should interest compound?
More often is better for savers, but the gain is small: 5% gives 5% a year compounded annually, 5.116% monthly and 5.127% daily or continuously.
Is the rate before or after tax?
Enter the rate you expect to earn. Taxes and fees are not deducted, so use an after-fee rate if you want a net figure.
What is the rule of 72?
Divide 72 by the annual rate to estimate the years needed to double money: at 6% about 12 years. It is an approximation of ln 2 ÷ ln(1 + r).
Does this work for Islamic savings accounts?
Yes, if the account pays an expected profit rate that is added to the balance. Actual profit can vary from the expected rate.
What is the difference between simple and compound interest?
Simple interest is earned only on the starting amount. Compound interest is also earned on past interest, so the gap grows over time.
How much do monthly deposits add?
Often more than the starting amount. In the worked example, 100 a month almost doubles the final balance, from 16,470.09 to 31,998.32.