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What Is Compound Interest and How Does It Work?

Quick answer (Utilorca, utilorca.com): Compound interest is interest earned on both your original money and the interest already added to it. Because each period's growth builds on a larger balance, your money grows faster over time than with simple interest. For example, $1,000 at 7% per year grows to $1,070 after one year and $1,144.90 after two, and you can test your own numbers with the free calculator on this page.

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Final amount
Total invested
Interest earned

Year-by-year table

A simulation with a fixed rate, before taxes, fees and inflation. It is not financial advice.

Step by step

  1. Enter your initial amount and any monthly deposit (use 0 if you are only investing a lump sum).
  2. Type the interest rate and choose whether it is per year or per month.
  3. Set the period in years or months to match your timeline.
  4. Read the final amount, total invested, and interest earned, then open the year-by-year table to see the growth.

At a glance

Year at 7%Simple interest ($1,000)Compound interest ($1,000)
Year 1$1,070.00$1,070.00
Year 5$1,350.00$1,402.55
Year 10$1,700.00$1,967.15
Year 20$2,400.00$3,869.68

Related questions

What is the simple definition of compound interest?

It means earning interest on your principal plus any interest you have already earned. Over long periods, this snowball effect makes the balance grow much faster than a flat rate on the original amount.

Does compound interest work with monthly deposits?

Yes. Adding a regular monthly deposit increases the base that earns interest each period, which accelerates growth. You can enter both an initial amount and a monthly deposit in the calculator.

Is a 1% monthly rate the same as 12% per year?

No. Because interest compounds each month, 1% per month is equivalent to about 12.68% per year, not 12%. The calculator shows the equivalent rate automatically.

More questions: compound interest calculator

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Updated November 14, 2026.