UTILITY / FIN-02
Interest Calculator
Project monthly-compounded growth across a selected term.
Year-by-year growth
| Year | Starting balance | Interest earned | Ending balance |
|---|---|---|---|
| 1 | $25,000.00 | $1,674.30 | $26,674.30 |
| 2 | $26,674.30 | $1,786.43 | $28,460.72 |
| 3 | $28,460.72 | $1,906.07 | $30,366.79 |
| 4 | $30,366.79 | $2,033.72 | $32,400.51 |
| 5 | $32,400.51 | $2,169.92 | $34,570.43 |
How monthly compound interest works
Compound interest earns interest on both the starting principal and interest accumulated earlier. This calculator models a single starting deposit at a constant annual rate, compounded once each month. It is a mathematical projection, not an account quote or a guaranteed investment return.
Projected balance = P × (1 + r ÷ 1,200)12 × t
Interest earned = projected balance − P
Here, P is your starting principal, r is the annual percentage rate entered as a number such as 6, and t is the term in years. Dividing r by 1,200 converts that percentage into a monthly decimal rate. Multiplying the term by 12 gives the number of monthly periods.
Worked compound interest examples
$1,000 at 6% for one year
The monthly rate is 6 ÷ 1,200 = 0.005, or 0.5%. After 12 periods, $1,000 × 1.00512 gives a projected balance of $1,061.68 and $61.68 of interest.
The same deposit over two years
Keeping the deposit and rate unchanged for 24 periods gives $1,000 × 1.00524 = $1,127.16, including $127.16 of interest. The second year adds more than the first because earlier interest stays in the balance.
The calculator’s starting figures
A $25,000 principal at 6.5% for five years uses 60 monthly periods. $25,000 × (1 + 6.5 ÷ 1,200)60 gives $34,570.43, including $9,570.43 of interest. These are illustrative inputs, not an advertised account rate.
Common interest mistakes
Entering a monthly rate in the annual field
The tool divides the entered rate by 12 before compounding. A monthly rate of 0.5% corresponds to a nominal annual rate of 6% in this model; entering 0.5 as the annual rate models a much smaller monthly rate.
Treating a nominal annual rate as APY
At a nominal annual rate of 6%, monthly compounding produces an effective one-year return of about 6.17%. APY already includes compounding; it is not interchangeable with the nominal rate used here. Using an advertised APY directly in this field can overstate the result.
What this projection leaves out
The calculation assumes no later deposits or withdrawals, no fees or taxes, and no changes in the rate. It does not model loan repayments, investment volatility, inflation, daily interest accrual, or a bank’s posting and rounding rules.
A zero rate or zero term leaves the balance equal to the principal. Fractional years are evaluated with the same formula, even if they imply a fractional monthly period; that is not an exact bank payment schedule. Results are rounded for display rather than rounding interest separately each month.