Compound Interest Calculator

Watch your savings investment grow with this simple compound interest calculator from Savvy.

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, updated on July 28th, 2023       

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Watch your savings grow with this compound interest calculator

Watching your savings grow is exciting and can motivate you to save even more money to make your financial dreams become a reality.  Use Savvy’s compound interest calculator to see exactly how much you’ll earn from your savings account on a daily, monthly or annual basis.

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Are you looking to grow your savings?  Compare a wide range of savings accounts with Savvy so you find the best deal in Australia and the highest interest rate to help grow your savings.  

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Compound interest calculator explained

How do I use the compound interest calculator?

It’s very simple to use this compound growth calculator.  Just enter in your deposit amount, the interest rate offered by your savings account and the savings term and click anywhere on the chart to view your results. 

The daily compound interest calculator will show you how much interest your savings will earn on a daily, monthly and annual basis, with the effective yield rate also calculated.  Using the compound growth calculator regularly will help you keep track of your savings growth and will keep your motivation up as you watch your nest egg growing each month.

How does compound interest work?

Compound interest means the interest you earn is added onto the original principal sum that you deposit, which essentially means you end up earning interest on your interest.  The effect of compounding means your savings will grow more rapidly.

For example, if you deposit $5,000 with an interest rate of 1% p.a., you’ll have earned $50 in interest (rounded to the nearest dollar) at the end of 12 months.  This is added onto your original sum, so in Year 2 you will earn interest on $5,050, which means you’ll end up with $5,101. After 3 years this will have grown to $5,152, and so on.

The more frequently your interest is compounded, or added on to your principal, the quicker your savings will grow.  Most financial institutions calculate interest daily and add the interest back into your account monthly, so you can watch your savings grow month by month.

What’s the difference between simple and compound interest?

Simple interest is calculated on an annual basis as a percentage of the principal amount, which is why home loan interest rates are quoted ‘per annum,’ for example 2.5% p.a.  This method of interest calculation is used most frequently for home loans, car loans and personal loans. The simple interest formula is very easy to work out: 

 Simple Interest = Principal amount × Rate of interest × Time period

Compound interest, on the other hand, is used for savings accounts, credit card debt, money market accounts and Certificates of Deposit.  In all these cases, the interest earned or owed increases over time.

What factors affect how much compound interest I earn?

The three main factors that affect how quickly your savings will grow are the interest rate, the compounding frequency and the time frame that is applied.

  • The interest rate – naturally, the higher the interest rate which is offered, the more interest you’ll earn on your savings and the faster your savings will grow. Even a small increase in the interest rate, say from 1.6% to 1.8%, can make a significant difference over a long period. 
  • Compounding frequency – how often your earned interest is added back into your account will also affect how quickly your savings grow, with the shorter the compounding period, the better. For instance, monthly compounding will earn you more interest than quarterly or annual compounding, because the interest will be added back into your account more frequently, giving your interest more opportunity to compound and increase as a result.
  • The term of the deposit – the longer you leave your savings to grow, the faster the rate that they’ll accumulate, following the mathematical principle of exponential growth. This means that the time it takes for your money to double becomes shorter as time passes.

What is the compound interest formula?

The compound interest formula to use to determine the amount of interest you’ll earn over a given period is:

Final balance = principal x (1 + (interest rate ÷ compound frequency)) time period

In more simple terms:

  • Divide the interest rate by the frequency with which your interest compounds. For example, most interest compounds monthly, so you would divide your interest rate by 12 to find the monthly rate.
  • Add 1 to this number and multiply this total to the power of the period over which you’re wishing to calculate your interest. Using the example above, you might wish to calculate your interest accrued over the course of a year, so this would be to the power of 12.
  • Multiply this number by the initial principal and you’ll have the final account balance at the end of your chosen period. To work out the interest accrued, simply subtract your original principal from the final balance.

An example of this calculation is based on $5,000 deposited for one year with an interest rate of 1% which compounds monthly:

$5,000 x (1 + (0.01 ÷ 12)) 12 = $5,050.23

 In this example, the final balance after one year would be $5,050.23, which means you will have earned $50.23 in interest in the first 12 months.  Of course, using Savvy’s daily compound interest calculator will do all the hard maths for you and give you an instant result, saving you on time and hassle.

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How to maximise your compound interest savings

Make more frequent deposits

Your savings will grow faster if you make more frequent deposits.  Making a smaller savings deposit every fortnight is far better than making one large deposit once a month.  This is because interest is calculated daily, so the more frequent your deposits, the more interest will be earned and the faster your nest egg will grow.

Make sure you’re getting the best deal

Comparing different financial products is important to make sure you’re getting the best deal possible.  Banks and financial institutions are continually bringing out new products, so it’s a good idea to check with Savvy regularly to make sure you have the highest interest rate on offer for your savings.

Resist the temptation to withdraw money

Leaving your savings in place to gain interest is vitally important if you want your savings to grow, so resist the temptation to withdraw money from your savings account as much as possible.

Automate your savings

Your savings will grow more effectively if you don’t rely on memory to make deposits – but instead set up an automatic transfer from your transaction account to your savings account every time you get paid.  In this way, your savings will increase in the background without you having to remember to make regular contributions.

More of your questions about compounding interest answered

Are there any restrictions on how much I can deposit in my account to accrue interest?

Yes, there may be – some high-interest savings accounts have a maximum limit as to how much you can deposit, but these tend to be very high, such as $250,000.  There is also a cash deposit limit in Australia of $10,000.  If you deposit more cash than this, the financial institution is obliged to report the deposit to the Federal government, as part of anti-money laundering laws which came into effect in October 2011.

Will I have to meet certain conditions to qualify for receiving interest?

Yes – high-interest savings accounts often have conditions which have to be met to receive a bonus interest rate.  These conditions are usually a minimum deposit requirement per month; for instance, you may have to deposit a minimum of $50 in the calendar month prior to receive the highest interest rate for the following month.

Will I earn more interest by putting my savings in a term deposit?

That will depend on the interest rate being offered for the term deposit, compared to a high-interest savings account.  Term deposits can be compounded, depending on the length of the deposit.  You can choose whether the interest is paid in a lump sum at the end of the term or paid regularly (monthly or annually) to allow it to compound.

What happens if I withdraw from my savings account?

Some savings accounts have withdrawal fees ranging from $5 to $15 to discourage withdrawals.  Other accounts do not allow monthly withdrawals or limit the number of withdrawals it’s possible to make in any given month.

How do I find the best interest rate for my savings?

Comparing different savings accounts is the best way to ensure you get the highest interest rate available.  Savvy can help you find and compare accounts so you’re able to make the best financial decision for your personal circumstances.

Can I have multiple accounts accruing interest at once?

In theory, nothing is stopping you from holding multiple savings accounts, but this may not be the best idea to earn you the most interest, as you could end up paying several different sets of account fees.

How old do I have to be before I can start earning compound interest on my savings?

There are savings accounts for kids of all ages, starting from newborns up to the age of 18.  Some savings accounts for kids have to be jointly in the names of the child and parent, while others allow the child to remove their parents as signatories once they reach a certain age, typically 10 years old.

Is it better to combine my savings with my partner to generate more interest?

Having a joint account with your partner won’t earn you any additional interest, but it may reduce the account fees you have to pay if you have one account instead of two separate accounts.  Have a look at the fees you may be paying and decide if you can save money by combining your savings into one account.

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