Compound Interest Formula: A Simple Worked Example
Compound interest adds growth to both your starting balance and previously earned interest. This guide explains the formula with a one-year example and shows how end-of-month contributions fit into the calculation.
Use the Compound Interest Calculator to enter your own figures and compare the result with the worked example below.
Compound Interest formula
i = (1 + r / m)^(m / 12) − 1; FV = P(1+i)^n + C((1+i)^n−1)/i. P is your starting balance, C is the end-of-month contribution, r is the annual nominal rate as a decimal, m is compounds per year, and n is months. At 0% the result is P + C × n. We convert the chosen frequency to an equivalent monthly growth rate.
Worked example
A $1,000 balance at 12% nominal interest, compounded monthly for one year with no contributions, becomes $1,126.83.
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
When comparing scenarios, use the same nominal rate and compounding frequency. The linked calculator assumes contributions arrive at the end of each month; it does not offer a beginning-of-month deposit toggle. A constant return is a modeling assumption, especially for investments whose prices move.
Related calculations
Method and further reading
The example follows the FinMathly calculator method. For broader background, see Investor.gov: Introduction to investing. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
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