Compound interest is interest earned on interest already paid, so a savings account grows faster the longer it is left alone. Calculated the way banks really do it: interest on your daily balance, credited monthly - not an investment-style annual growth rate. Model a bonus rate that reverts to an ongoing rate, since that is how most high-interest savings accounts are actually structured.
Real savings accounts do not compound to a target annual figure the way an investment return does. Banks calculate interest daily on your closing balance - daily interest = balance × (annual rate ÷ 365) - then credit the accumulated amount to your account, usually monthly. Because that credited interest then earns interest itself the following month, the account effectively compounds monthly as a side effect, not because the bank applied a monthly-compounding formula directly.
That distinction matters: it means the rate printed on your account (the nominal rate) and what you actually earn over a year (the effective annual yield) are not quite the same number - the effective yield ends up very slightly higher, purely from that monthly reinvestment. This calculator applies the nominal rate you enter using the real daily-accrual method, the same way the numbers on your actual statement would be worked out.
Both tools show a balance growing over time, which can make them look interchangeable. They are not modelling the same thing. A savings account is a bank deposit with a rate that is fixed or variable but always known in advance, calculated daily, and usually accessible whenever you want it. Money in shares, a managed fund, or a retirement account is market-linked - the return is not a quoted rate but a long-run average of gains that vary year to year, often locked away for decades, which is why inflation and multi-decade staging matter there in a way they don't for a one-to-five-year savings goal.
Use this page for a bank account, an emergency fund, or a house deposit - somewhere you can name the actual interest rate. Use the retirement calculator for market-linked, multi-decade growth, career-break stages, and what the balance is really worth after inflation - a genuinely different set of questions.
Interest is calculated on your balance each day and usually credited once a month. Once credited, that interest earns interest itself, so the balance grows a little faster each month even if you add nothing.
The advertised rate is the nominal rate. APY (US) or AER (UK and EU) is what you actually earn over a year once monthly compounding is counted. A 5% nominal rate compounded monthly gives an APY of 5.1162%.
Yes. The money withdrawn also stops earning interest for the rest of the term. Taking $200 a month out of a $10,000 account at 4.5% over three years costs the $7,200 withdrawn plus about $522 in interest that would otherwise have been earned.
Simple interest is calculated only on the original amount for the whole term, so the interest payment never changes. Compound interest is recalculated on the growing balance each period, including interest already earned - which is why compound growth accelerates over time while simple interest stays flat.
Yes, though the gains shrink each time you compound more often. Daily compounding beats monthly, which beats yearly, at the same nominal rate - but the jump from monthly to daily is much smaller than the jump from yearly to monthly, since the numbers are converging toward the mathematical limit of continuous compounding.
A bonus rate is a higher rate that applies only for an introductory period or only if you meet a condition, like a minimum monthly deposit - after that it drops to a lower base rate. Model the two periods as separate calculations at their own rates rather than entering the bonus rate for the whole term, or the projection will overstate what the account actually pays.