Investing
Compound Interest With Monthly Contributions: Example
Adding money every month is how most people build savings. Each deposit earns interest, and that interest earns interest too. Here is exactly how it adds up, with a full example you can check yourself.
By the MoneyTools Editorial TeamLast updated 6 min readEditorial Policy
How monthly contributions compound
Compound interest means interest is added to your balance, and the next month's interest is calculated on the bigger balance. When you also add money every month, each deposit starts its own small compounding clock. A deposit made in year one has decades to grow; a deposit made last month has barely started.
If you are new to the idea, start with How Compound Interest Works, then come back here for the monthly version.
The formula
The ending balance has two parts: what your starting amount grows to, and what your monthly deposits grow to.
FV = P(1 + i)^N + PMT × [(1 + i)^N − 1] ÷ i
- P
- Starting balance
- PMT
- Monthly contribution
- i
- Monthly rate (annual rate ÷ 12)
- N
- Number of months
This version assumes deposits are made at the end of each month and interest compounds monthly. Depositing at the start of each month gives a slightly higher result.
Worked example
Worked example
$5,000 to start, $300 a month, 7% a year, 20 years
- Monthly rate i = 0.07 ÷ 12 ≈ 0.005833; months N = 20 × 12 = 240
- Growth factor (1 + i)^240 ≈ 4.039
- Starting balance grows to $5,000 × 4.039 ≈ $20,194
- Monthly deposits grow to $300 × (4.039 − 1) ÷ 0.005833 ≈ $156,278
- Total deposited: $5,000 + ($300 × 240) = $77,000
Ending balance ≈ $176,472. About $99,500 of that is interest — more than the money you put in.
Growth over 10, 20 and 30 years
| Years | Total you deposit | Ending balance | Interest earned |
|---|---|---|---|
| 10 | $41,000 | ≈ $61,975 | ≈ $20,975 |
| 20 | $77,000 | ≈ $176,472 | ≈ $99,472 |
| 30 | $113,000 | ≈ $406,579 | ≈ $293,579 |
Look at the jump from year 20 to year 30. You deposit only $36,000 more, but the balance grows by about $230,000. Most of the growth comes late, which is why starting early matters so much.
What changes the result most
Time
Each extra year applies growth to a larger balance. Starting five years earlier often beats contributing more later.
Monthly amount
The contribution part grows in a straight line with the deposit. Doubling $300 to $600 doubles that part of the result.
Rate of return
A savings account might pay a few percent, while long-run stock returns have historically been higher but uneven and never guaranteed. Test a cautious rate and an optimistic rate to see a range.
Fees and taxes
Investment fees and taxes reduce your effective rate. A 1% yearly fee on a 7% return leaves 6%, which makes a noticeable difference over 30 years.
Try your own numbers
- Open the Compound Interest Calculator and enter your starting balance, monthly contribution, rate and years.
- Try a lower and a higher rate to see a realistic range.
- Use the Savings Goal Calculator if you have a target amount and want to know the monthly deposit you need.
Example rates are for illustration. Investments can lose value, and past returns do not predict future results.
Run your own numbers
Calculate how your money can grow with compound interest.
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