How compound interest works
Compound interest is interest on interest. Each month the interest joins the balance, and the next month's interest is calculated on the larger amount. Your deposits stay the same; the growth speeds up.
Example: start with €5,000 and add €200 a month for 25 years at 3% a year. You pay in €65,000, and the balance reaches €99,777. Of that, €34,777 is interest — 34.9% of the final balance.
In the first year the interest is €185. In year 25 it is €2,907. From year 22, interest adds more each year than your own €2,400 of deposits.
The compound interest formula
With monthly compounding and a deposit at the end of each month:
FV = P·(1 + r/12)12t + PMT·((1 + r/12)12t − 1) / (r/12)
P is the starting amount, PMT the monthly deposit, r the yearly rate as a decimal (3% = 0.03) and t the number of years. The calculator above runs the same sum month by month, which is how it builds the table by year.
Time is the strongest lever
The same €5,000 to start and €200 a month at 3%, over three periods:
| Years | Paid in | Interest | Final balance |
|---|---|---|---|
| 10 | €29,000 | €5,695 | €34,695 |
| 20 | €53,000 | €21,764 | €74,764 |
| 30 | €77,000 | €51,832 | €128,832 |
Twice the time brings far more than twice the interest: after 30 years interest is 40.2% of the balance, after 10 years 16.4%. That is why an early start with a small monthly amount grows so well.
Monthly or yearly compounding
Some accounts add interest every month, others once a year. In the example, monthly compounding gives €99,777 and yearly gives €99,174 — €603 more over 25 years with the same rate. Switch between the two in the calculator.
The rule of 72
For a quick estimate of how long money takes to double, divide 72 by the yearly rate. At 3%: 72 ÷ 3 = 24 years. The exact figure with monthly compounding is 23.1 years.
Which rate to enter
Use the rate from your own savings account or deposit terms. The result is the arithmetic of the rate you enter, before tax and fees. To see it in today's money, enter the rate minus inflation.
Frequently asked questions
What is compound interest?
Interest calculated on both the money you put in and the interest already earned. Each period the interest joins the balance, so the next period's interest is larger.
How do I calculate compound interest with monthly contributions?
FV = P·(1 + r/12)^(12t) + PMT·((1 + r/12)^(12t) − 1) / (r/12). With €5,000 to start, €200 a month, 3% a year and 25 years, the result is €99,777, of which €34,777 is interest.
How long does it take to double my money?
Divide 72 by the yearly rate. At 3% that is about 24 years; the exact figure with monthly compounding is 23.1 years.
What interest rate should I use?
The rate from your own account or deposit terms. The 3% preset is an example. Groworth shows the arithmetic and leaves the choice of products to you.
Does the calculator include tax and inflation?
It shows the balance before tax, fees and inflation. For the result in today's money, enter the rate minus inflation: 3% interest with 2% inflation is 1%.
Monthly or yearly compounding: what is the difference?
At the same rate monthly compounding gives slightly more, because interest starts earning sooner. In the example the difference is €603 over 25 years.