The difference is what earns interest
Simple interest is calculated on the original principal. Compound interest is calculated on the principal plus interest that has already accumulated. The U.S. Securities and Exchange Commission’s investor education site describes compound interest as interest on both principal and accumulated interest. This difference can make a noticeable gap over time, even when the starting amount and stated annual rate are the same.
Consider $1,000 at 5% a year for five years, with no extra deposits, fees, or taxes. Under simple interest, each year adds $50, so the balance reaches $1,250. Under annual compounding, the balance grows to about $1,276.28. The $26.28 difference is interest earned on interest from earlier years. Enter an initial amount of $1,000, a monthly contribution of $0, an annual rate of 5%, and 60 months in the compound interest calculator to reproduce this comparison.
Contribution timing matters
When you add money every month, each contribution has a different amount of time to earn interest. A deposit at the beginning of a month enters the balance before that period’s growth; a deposit at the end is added after the period’s growth. With other inputs held constant, the start-of-month option usually produces a higher estimate because each contribution spends longer in the account. Check your product’s actual deposit date and interest-crediting rule before treating a calculator estimate as a statement amount.
Compounding frequency also matters. The tool offers annual, monthly, and daily frequencies. It converts the selected annual rate into a monthly equivalent for its month-by-month schedule. For the five-year example with no deposits, annual compounding produces the familiar annual result. With monthly deposits, the selected timing and the tool’s monthly schedule affect when each contribution begins earning. Compare like with like: an advertised rate, an effective annual yield, and a rate compounded on a different schedule may not be interchangeable.
Recreate an estimate step by step
Start with the initial deposit. Leave the monthly contribution at zero if you want to isolate compounding, then enter the rate and duration. Select the compounding frequency and contribution timing that match the question you are trying to answer. In the example above, there are no contributions, so the result is a pre-tax comparison. The English calculator does not include a tax option; the Korean calculator has a separate tax estimate option. Actual tax treatment depends on the account and applicable rules.
Read the result card for total contributions, interest, and final balance. The year-by-year table shows how the balance builds over time. The simple-interest comparison is useful as a baseline: it helps separate growth on the original principal from growth on prior earnings. Change one input at a time—such as five years to ten years—to see which assumption drives the difference.
A higher estimate is not a promise
Compounding describes how returns are applied; it does not guarantee the return itself. A savings product may have a stated rate and contractual rules, while an investment’s value and return can change and may be negative. Fees, withdrawals, taxes, deposit limits, and rate changes can all make a real outcome differ from the estimate. The calculator assumes a steady rate for the selected period and does not choose an account or investment for you.
Before comparing products, read how the rate is quoted, how often it is credited, whether it can change, and what happens if you withdraw early. Compare the after-fee and after-tax amounts only when the assumptions are appropriate to both products. This example is a mathematical illustration, not a forecast or financial advice. For borrowing, see the loan repayment methods guide to understand how principal reduction changes interest.
The Korean-language explanation is 단리와 복리 비교.
Read the contribution and interest separately
An account with monthly deposits can end with a large balance even when its interest rate is modest because much of that balance may be money you contributed. Look at the calculator’s total-contributions value alongside interest and final balance. For example, contributing $100 each month for five years means $6,000 of deposits before interest. A comparison is meaningful only when the starting amount, monthly contribution, rate, duration, compounding frequency, and deposit timing match.
The tool adds a start-of-month deposit before its monthly growth step and an end-of-month deposit afterward. That convention explains why the two timing choices produce different estimates. A bank may process a deposit on a different calendar day, apply its own interest-crediting schedule, or change the rate during the term. Check the account agreement if you need an exact maturity value.
The English calculator shows pre-tax results. If you need an after-tax comparison, account for taxes separately using the rules that apply to the account and your circumstances. Compare pre-tax values with pre-tax values and after-tax values with after-tax values, and use official tax guidance for a real filing or product decision.
For variable-rate investments, a constant rate is a scenario, not a forecast. Market returns can vary and may be negative; even a savings product can have conditions that change the rate you receive. Try several rates to understand sensitivity, but do not treat the most favorable output as a promised result. This calculator can show the arithmetic of a scenario, but it cannot assess suitability, fees, or risk for you.