Formula
Interest is credited on the selected schedule, using the balance before that month’s contribution. The contribution is then added.
Interest credit = balance × annual rate / compounds per year
Monthly compounding credits interest every month. Quarterly and annual schedules wait for the end of the period.
Assumptions
- The rate stays fixed.
- Each contribution arrives at the end of the month.
- Interest is rounded to the nearest cent when it is credited.
Worked example
Starting with $10,000.00 and adding $200.00 a month at 7% compounded monthly grows to $54,713.57 in 10 years. Interest is $20,713.57.
Input definitions
- Starting balance
- Money already saved before the first month.
- Compounding
- How often unpaid interest is added to the balance.
Limitations
Returns are not guaranteed. This does not model taxes, fees, or a change in the contribution.
Questions
When is the monthly contribution added?
At the end of each month, after any interest credited in that month.
Does annual compounding earn less?
Usually yes, because interest is added to the balance less often than with monthly compounding.