Compounding Calculator

The formula

each period: balance = balance × (1 + rate) + contribution
with no contributions: final = start × (1 + rate)^periods

Compounding occurs when an investor in a given investment time frame (the “period”) receives returns for both their original deposit AND the returns they received in prior periods. For example, if we start with $10,000 and make a 5% profit during our first investment period we will now have $10,500. When we begin to calculate interest for the second investment period, it will be calculated as a 5% return based upon the value of your new balance ($10,500) rather than your initial principal amount of $10,000. This cycle repeats itself through all of the investment periods. By the end of 24 periods, this method produces a return of approximately $10,000 × 1.05²⁴ ≈ $32,251 or a total increase in value of 222%. If we had applied simple interest over those same 24 periods and removed the 5% profit at the end of each one, we could expect to see a total return of approximately 24 x .05 = 120%. The difference between these two numbers represents the power of compounding.

The curve is the point. It starts almost flat and bends sharply upward, because the base it grows on keeps getting larger. That shape is why long horizons and honest, modest rates beat short horizons and heroic ones, and why overstating your expected return by a few points warps the projection so badly. Change the rate from 5% to 8% above and watch the final balance roughly double; the exponential does not forgive optimism.

The honest caveat

No account trading has a smooth growth line. Real returns are lumpy and there will be lose streaks and drawdowns that a constant rate model cannot show. This calculator is a lesson in the mathematics of compounding not a forecast; it tells you what perfect consistency would produce which is useful as a benchmark for how rare perfect consistency really is. To see how variance from an average return can threaten the account long before compounding paid off, run the risk of ruin simulator and size each trade with the position size calculator so no single period could end the compounding early.

Forex, crypto and daily compounding plans

There are no days, months or years associated with anything in the tool. Whatever you define as your "period", be it a trading day for a daily compounding plan on forex, one trade, a week or a month, set the amount earned during each period and how many periods to earn that same total. That flexibility is where the potential danger lies. If you enter 5% a day for 30 days into the calculator and it converts your $1,000 into over $4,300 then you have simply bought into what all of the daily target and binary "compounding plan" marketers sell. The math works out; your input does not. There is no account that can compound at 5%, flat rate, on a daily basis; that's why this page exists - because of an honest disclaimer.

SIPs, savings and compounding frequency

The same engine models an investment plan or a savings account, not only a trading account. For a monthly SIP or a regular deposit, put the contribution in add per period and set the periods to the number of months; the balance compounds and your deposit is added each period. Two related terms turn up around this: APY is just the growth expressed as one annual percentage after a year of compounding at your chosen frequency, and CAGR runs the formula backwards, the single constant rate that takes a real starting balance to a real ending one. Continuous compounding is the mathematical limit of shrinking the period toward zero, and at ordinary rates it lands only a hair above monthly or daily compounding.