Compound Interest Calculator

This compound interest calculator projects how a deposit grows over time by calculating interest on both the initial balance and the accumulated earnings across Australian savings accounts and term deposits.

Gross figures, compounding on the running balance; illustrative only, not a projection, forecast or advice. Interest is taxable in Australia. Confirm rates and terms with the provider.

See real rates to plug in: savings accounts · term deposits · or model bonus conditions with the effective-rate savings calculator.

How compound interest works

Simple interest applies strictly to the initial deposit, known as the principal. In contrast, compound interest calculates returns on both the principal and any previously credited interest, creating an accelerating growth curve over time.

For example, if a hypothetical balance of $10,000 earns an illustrative annual interest rate of 5% compounded annually, the first year yields $500 in interest, raising the balance to $10,500. In the second year, the 5% calculation applies to the full $10,500 rather than the starting principal alone, returning $525. Over longer horizons, this reinvestment cycle causes the compounding portion of the earnings to outpace the returns generated by the original principal.

Compounding frequency matters

The timing of how interest is calculated and credited directly impacts total earnings. More frequent compounding cycles generate higher nominal returns because interest begins earning interest sooner.

Most Australian high-interest savings accounts calculate interest daily using the end-of-day ledger balance, then credit the accumulated total to the account monthly. Term deposits typically compound quarterly, semi-annually, or annually, while some pay interest only at maturity. When comparing financial products, the effective annual rate reflects the true return after accounting for these compounding intervals.

The Rule of 72

The Rule of 72 is a mathematical shortcut used to estimate the number of years required to double an initial sum at a fixed annual rate of return. Dividing 72 by the annual interest rate provides an approximate doubling period.

For instance, an account earning a fixed annual rate of 6% will double an initial deposit in roughly 12 years (72 divided by 6). At a 4% rate, the approximate doubling time extends to 18 years. While the rule serves as a practical mental model for compound growth, precise outcomes vary based on compounding frequency, rate fluctuations, and taxation.

What reduces your real return

Nominal interest rates displayed by institutions do not reflect the final purchasing power delivered by a deposit. Two primary economic factors influence the net, real return:

• Taxation: Under Australian tax law, interest earned on savings accounts and term deposits forms part of your assessable income and is taxed at your individual marginal tax rate. Institutions report interest income directly to the Australian Taxation Office (ATO).
• Inflation: Rising consumer prices erode the purchasing power of money over time. If the rate of inflation matches or exceeds the after-tax interest rate, the real purchasing power of the deposit remains static or declines.

Deposit balances held with Australian authorised deposit-taking institutions (ADIs) are legally protected under the Financial Claims Scheme (FCS) up to $250,000 per account holder, per licensed institution. Interest rates displayed across comparison tables are indicative and subject to change by the issuing bank; account conditions and product disclosure statements should be reviewed directly with the provider before opening an account.