LoanLedger

Compound interest, year by year

A starting amount, a rate, and anything you add along the way — with the split between your money and the interest made obvious.

This is a calculator, not advice. It tells you what the arithmetic does at the numbers you type in. It does not know your income, your other debts or your plans, and it does not recommend a rate, a term or a lender. For advice about your own situation, talk to a licensed financial adviser or mortgage broker.

The part that does the work

The interesting number in a compound interest calculation is not the final balance. It is the split: how much of that balance is money you put in, and how much the interest generated on its own. Over ten years at a modest rate the contributions usually dominate. Over thirty, the interest does — and the crossover point is the entire argument for starting early.

That is why the bar under the result separates the two. A final figure alone tells you very little; the same figure with a third of it earned rather than contributed tells you something about the mechanism.

Nominal, not real

These figures do not adjust for inflation. A projection thirty years out in today's dollars will overstate what the money buys, sometimes substantially. If you want a real-terms answer, subtract your inflation expectation from the rate before entering it and read the result as money of today's purchasing power. Calculators that quietly present nominal long-run figures as though they were real are the most common way compound-interest projections mislead.

The same formula as the mortgage

Compound interest and an amortising loan are the same arithmetic viewed from opposite ends. In a mortgage, the balance falls and the interest is charged to you; in savings, the balance rises and the interest is paid to you. Both are governed by the rate, the frequency, and above all the number of periods. Understanding one gives you the other for free.

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Questions

When are contributions added?
At the end of each period — the conventional ordinary-annuity assumption, and the conservative one. Adding them at the start of each period produces a slightly higher final figure, which is why some calculators quietly do it: it flatters the result. The assumption is stated here so the number is checkable.
Does compounding frequency matter much?
Less than people expect, and much less than the rate. Moving from annual to monthly compounding at 7% over ten years changes the result by a couple of percent. Moving the rate from 7% to 8% changes it far more. Compounding frequency is a detail; the rate and the number of years are the story.
Is this inflation-adjusted?
No. Every figure is nominal, meaning it does not account for the fact that the money will buy less in twenty years than it does today. If you want a rough real-terms view, enter your expected return minus expected inflation as the rate — around 2–3 percentage points lower is the usual adjustment — and read the result as today's money.
Why is this on a mortgage site?
Because it is the same arithmetic pointed the other way. A mortgage is compound interest working against you; savings are compound interest working for you. The formula is identical, and seeing both makes the mechanism obvious in a way that either alone does not.