How compound interest works
Interest is calculated on your balance each period and added to it, so the next period's interest is calculated on a slightly larger amount. Early on the effect is modest; over decades it dominates. In the default example ($10,000 start, $250/month at 4.5% for 20 years), more than a quarter of the final balance is interest the account generated by itself.
APR vs. APY — which do I enter?
Banks advertise savings products with APY (Annual Percentage Yield), which already includes compounding. If you have an APY, choose "Yearly" compounding above and the math matches. If you have a nominal annual rate (APR-style), pick the compounding frequency your account actually uses — daily and monthly are most common.
Where fixed rates live
Certificates of deposit (CDs) lock a fixed rate for a set term. High-yield savings accounts pay a variable rate that changes with the market — use today's rate as an estimate. Treasury bonds and notes pay fixed coupons. This calculator models any of them as a steady rate; real-world variable rates will drift.
The contribution habit beats the rate
A common surprise: at typical savings rates, how much you contribute matters more than the exact rate for the first decade. Compare 4% vs 5% in the tool — then compare $250/month vs $350/month. Consistency compounds too.