How to Calculate Compound Interest Monthly (With Examples)

By HSP · Published October 5, 2026 · 5 min read · Money & Finance

Compound interest is interest that is added to your balance and then earns interest itself. When it is compounded monthly, this happens twelve times a year, so your money grows a little faster than with yearly compounding. The formula looks scary at first, but it only has four parts. This guide walks through it slowly, shows two worked examples, and explains how to add a regular monthly deposit.

The monthly compound interest formula

For a single deposit that is left to grow, the future value is:

A = P × (1 + r ÷ 12)12 × t

• A is the amount you will have at the end.
• P is the principal, the amount you start with.
• r is the yearly interest rate written as a decimal, so 6% becomes 0.06.
• t is the number of years.

The part in brackets, 1 + r ÷ 12, is the growth factor for one month. Raising it to the power of 12 × t applies that growth once for every month. If your bank compounds daily, quarterly or yearly instead, replace 12 with 365, 4 or 1.

Step by step: a worked example

Suppose you put 10,000 into a savings account paying 6% a year, compounded monthly, and leave it for 10 years.

1. Find the monthly rate. 0.06 ÷ 12 = 0.005, which is 0.5% per month.
2. Add 1. 1 + 0.005 = 1.005.
3. Count the months. 12 × 10 = 120 months.
4. Raise to the power. 1.005¹²⁰ ≈ 1.8194. On a phone calculator, type 1.005, press the x^y or ^ key, then type 120.
5. Multiply by the principal. 10,000 × 1.8194 ≈ 18,194.

So the account would hold about 18,194, of which roughly 8,194 is interest. You can confirm this in seconds with our compound interest calculator: enter 10,000 as the starting balance, 0 as the monthly deposit, 6% and 10 years, and choose monthly compounding.

How much difference does monthly compounding make?

Using the same 10,000 at 6% for 10 years, here is how the compounding frequency changes the result:

Monthly compounding beats yearly compounding by about 285 here. The jump from monthly to daily is much smaller. In practice, the interest rate and the time you leave the money invested matter far more than the compounding frequency.

Adding a monthly deposit

Most people do not just deposit once; they add money every month. For deposits made at the end of each month, the extra amount they grow into is:

FV = D × ((1 + r ÷ 12)12t − 1) ÷ (r ÷ 12)

where D is the monthly deposit. Say you add 200 a month for the same 10 years at 6%:

1. The growth factor is again 1.005¹²⁰ ≈ 1.8194.
2. Subtract 1 to get 0.8194, then divide by 0.005 to get about 163.88.
3. Multiply by the deposit: 200 × 163.88 ≈ 32,776.

Add the 18,194 from the starting balance and the total is about 50,970. You paid in 34,000 in total (10,000 plus 120 deposits of 200), so nearly 17,000 came from interest. If you deposit at the start of each month, each payment earns one extra month of interest, and the deposit part rises to about 32,940. Our calculator has a setting for both cases.

Monthly compounding and the effective annual rate

Banks often advertise two numbers. The nominal rate is the headline yearly rate (6% in our example). The effective annual rate, sometimes called the APY, shows what you really earn in a year once monthly compounding is included:

EAR = (1 + r ÷ 12)12 − 1

For 6% compounded monthly, that is 1.005¹² − 1 ≈ 6.17%. When you compare accounts, compare effective rates, because they put every compounding schedule on the same footing. The U.S. Securities and Exchange Commission’s investor education site explains the same idea and offers its own calculator if you want a second check.

Common mistakes to avoid

• Forgetting to divide the rate by 12. Using 0.06 instead of 0.005 per month gives a wildly wrong answer.
• Using years instead of months in the exponent. Ten years of monthly compounding is 120 periods, not 10.
• Typing 6 instead of 0.06. Percentages must be converted to decimals before you use the formula.
• Ignoring inflation. 18,194 in ten years will not buy what 18,194 buys today. Use the inflation calculator to see the real value.
• Ignoring tax and fees. Interest may be taxable, and account fees reduce growth. The formula shows the gross figure.

Doing it in a spreadsheet

In Excel or Google Sheets, the future value of a starting balance plus monthly deposits is =FV(6%/12, 120, -200, -10000), which returns about 50,970. The minus signs tell the spreadsheet that money is leaving your pocket. Add a fifth argument of 1 if deposits happen at the start of each month.

Putting it to work

Once you can calculate monthly compound interest, you can answer practical questions: how long it takes to reach a goal, how much a higher rate is worth, or what happens if you start five years earlier. The savings calculator works backwards from a goal, and our guide to how much to save each month shows how to turn a target into a monthly figure. For the bigger picture of why starting early matters, read compound interest explained.