Question 1

What is compound interest?

Accepted Answer

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (calculated only on the principal), compound interest allows your money to grow exponentially over time — often called "interest on interest".

Question 2

How does compounding frequency affect my returns?

Accepted Answer

The more frequently interest compounds, the more you earn. Daily compounding yields slightly more than monthly, which yields more than quarterly or annually. For example, $10,000 at 5% compounded daily earns about $12 more per year than monthly compounding. The difference grows significantly over longer time periods.

Question 3

What is the difference between nominal and effective interest rate?

Accepted Answer

The nominal rate is the stated annual rate. The effective rate accounts for compounding frequency and reflects what you actually earn. For a 5% nominal rate compounded monthly, the effective rate is approximately 5.12%. The calculator shows your effective rate automatically.

Question 4

How much difference do regular deposits make?

Accepted Answer

Regular deposits dramatically accelerate growth due to compound interest. For example, $10,000 invested at 5% for 20 years grows to about $26,533. But adding just $200/month turns that into approximately $108,065 — the regular deposits add up and each one earns compound interest too.

Question 5

What is the Rule of 72?

Accepted Answer

The Rule of 72 is a quick estimate for how long it takes to double your money. Divide 72 by your annual interest rate. At 6%, your money doubles in approximately 12 years (72 / 6 = 12). At 8%, it doubles in about 9 years. This assumes no additional contributions.

Question 6

Does this calculator account for tax on interest?

Accepted Answer

This calculator shows gross returns before tax. In Australia, interest earned on savings is generally taxable income. Use our Pay Calculator to estimate your marginal tax rate, then adjust the interest rate accordingly (e.g., if your rate is 5% and your marginal rate is 30%, your after-tax rate is approximately 3.5%).

Compound Interest Calculator

Your Investment Strategy

Your Results

Growth Over Time

Frequently Asked Questions

Explore Related Calculators