Compound Interest: The Simple Math Behind Growing Savings
Understand compounding frequency, APY vs APR, and how contributions accelerate growth.
Open the compound interest calculator
Updated 2025-08-09
Why compounding works
Interest earns interest. Over time, compounding can dominate contributions—especially when you start early.
Formulas
- Lump sum:
A = P (1 + r/n)^(n t)
- Contributions:
PMT × ((1 + r/n)^(n t) − 1) / (r/n)
Practical tips
- Automate transfers the day after payday.
- Hunt for higher APY (online banks and CDs can be competitive).
- Increase contributions whenever you get a raise.
Try the calculator
See 5, 10, and 20‑year scenarios with your numbers.
FAQ
- What’s the difference between APR and APY?
- APY includes compounding; APR does not. For savings accounts, APY is the useful figure.
- Does compounding frequency matter?
- Yes. More frequent compounding increases growth slightly, all else equal.
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