Compound interest means that interest is added to your balance and can earn interest itself in later periods. Over time, this can make savings grow faster than when interest is withdrawn. The result depends mainly on the starting balance, rate and time invested.
The compound interest formula
For annual compounding, a simplified formula is: Future value = starting balance × (1 + rate / 100) raised to the number of years.
Example: €1,000 earns an assumed 3% per year for five years. The calculation is €1,000 × 1.03⁵, which gives about €1,159.27 before tax and possible fees. The German central bank also explains the compound interest formula in its educational material.
What changes the result?
- Time: A longer period gives returns more opportunities to compound.
- Rate: A higher assumed rate increases the mathematical result, but is not guaranteed.
- Regular deposits: A savings plan adds contributions over time.
- Costs and taxes: Fees, tax and inflation reduce the value you keep.
Use the compound interest calculator to test different terms and rates. The savings goal calculator helps estimate a monthly contribution, while the loan calculator can put borrowing costs into perspective.
Choose realistic assumptions
A calculator displays a mathematical scenario. Actual investment returns can fluctuate or be negative. Securities also involve market, product and fee risks. Try a cautious, middle and optimistic scenario instead of relying on one high target return.
This is an illustrative calculation, not investment advice or a forecast of returns.
Which assumptions should you check?
Check whether the return is quoted annually, monthly or for another period, and when contributions are credited. A nominal annual rate is not automatically the same as an effective annual return. Fees, taxes, inflation and changing investment results can materially affect the real growth of your savings. Use consistent assumptions when comparing scenarios.
Is compound growth guaranteed?
Only a contract with a specified guaranteed rate promises that rate. Returns from shares, funds and other investments are uncertain and can be negative as well as positive.