With annual compounding, interest is added once a year and the next year’s interest is calculated on the larger balance. It is the simplest form of compounding and the standard way to describe long-term investment returns.
Annual Compound Interest Calculator
Calculate growth with interest compounded once a year.
Results are estimates for educational purposes and are not financial advice. Actual returns depend on your provider's terms, fees and taxes.
Annual compounding formula
A = P × (1 + r)t
With n = 1 the general formula simplifies: there is one compounding period per year, so the rate per period is the annual rate itself and the number of periods is the number of years.
- P
- Starting amount.
- r
- Annual rate as a decimal.
- t
- Number of years.
How to use
- Enter the starting amount.
- Enter the annual rate (or an annual average return).
- Enter the number of years and press Calculate.
Worked example
$1,000 grows at 7% a year for 10 years.
| Year | Start balance | Interest (7%) | End balance |
|---|---|---|---|
| 1 | $1,000.00 | $70.00 | $1,070.00 |
| 2 | $1,070.00 | $74.90 | $1,144.90 |
| 3 | $1,144.90 | $80.14 | $1,225.04 |
| … | … | … | … |
| 10 | $1,838.46 | $128.69 | $1,967.15 |
Using the formula directly: 1,000 × 1.0710 = 1,000 × 1.967151 = $1,967.15. Total interest is $967.15, compared with $700 of simple interest. Notice that each year’s interest is larger than the last — that is compounding at work.
Practical uses
- Projecting investments using an average annual return.
- Annual-compounding bonds, deposits and some government savings schemes.
- Growing any figure by a constant yearly percentage — prices, salaries, population.
Assumptions and limitations
- Interest is added once at the end of each year at a fixed rate.
- Investment returns are not steady in real life. A 7% average with ups and downs does not produce exactly the same result as a steady 7% each year.
- No additional deposits, taxes or fees.
Frequently asked questions
Is annual compounding the same as APY?
Yes. If you enter an APY as the rate with annual compounding, you get the correct balance for any account, whatever its actual compounding frequency.
How long does money take to double at 7%?
About 10.24 years exactly; the Rule of 72 estimates 72 ÷ 7 ≈ 10.3 years. Try the Time to Double Money Calculator.
Can I use this for a negative return?
No — the rate must be zero or positive. For losses, the result can be estimated by hand with (1 − loss rate)t.