Investment
How compound interest works
Why interest-on-interest matters, how frequency changes the result, and how to read a compound-interest calculator.
Publisher: SmartCalculatorsLast updated: 17 August 2026
Interest that becomes principal
Simple interest pays only on the original principal. Compound interest adds earned interest back so later periods earn on a larger base. That is why long horizons look dramatic even at modest rates — and why assumed rates must stay honest.
The formula the calculator uses
A = P × (1 + r/n)^(n×t). P is principal, r is the annual rate, n is compounding periods per year, and t is time in years. Interest is A − P. Frequency (yearly, quarterly, monthly, daily) changes n.
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Frequently asked questions
Is more frequent compounding always better?
At the same stated annual rate, yes, the mathematical yield is a little higher. Products do not always quote comparable rates, so read the fine print rather than chasing “daily” as a slogan.
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SmartCalculators provides educational calculators and estimates. Results are for informational purposes only and should not be considered financial, tax, investment, legal or professional advice.