Once interest joins your savings, it can earn interest too.
Your interest earns interest.
Leave the interest with your savings. Next year, both can earn a little more.
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You start
$100
The money you put in.
Your starting savings
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One year later
$105
You earn $5. Keep it in.
$100 + $5 interest
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Another year
$110.25
Now all $105 earns interest.
$105 + $5.25 interest
Where did the extra 25¢ come from?
Your original $100 earns $5 again.
Last year’s $5 interest earns another 25¢.
Interest earning interest. That’s compound interest.
AUD · Teaching example: 5% a year, added once a year and left in the account. No extra deposits, withdrawals, fees or tax. This is not a bank offer or a guaranteed return.
Our calculator adds interest monthly. This yearly example keeps the idea simple.
Start with the two balances
Your account balance is the amount available in the account. Your total deposits are the money you have put in yourself. The gap between them is interest, assuming there have been no withdrawals, taxes or fees. Keeping those two numbers separate makes a savings projection easier to read. A large future balance can be mostly your own contributions; that does not make the plan less useful, but it changes what the graph is telling you.
A small worked example
Suppose you begin with $1,000 and earn a hypothetical 12% annual rate, credited monthly. This unusually high rate is chosen only to make the arithmetic easy to follow. With no additional deposits, the first month earns $10. In the second month, interest is calculated on $1,010 and adds $10.10. At the end of twelve months the balance is approximately $1,126.83. The extra $6.83 beyond $120 of simple interest comes from earning interest on earlier interest.
Regular deposits often matter more at the start
With a small opening balance, the amount you save can make a bigger difference than a small rate change. Try the calculator once with your current contribution and again with an extra $20 or $50. Keep the rate and time the same so you can see the effect of just that change. Next, hold the contribution steady and lower the interest rate. This separates the part you control from the part the bank can change.
Read the graph as a scenario
The rising line is a mathematical projection using the numbers you enter. It does not predict future interest rates, inflation or your ability to maintain deposits. Howloop uses monthly compounding and end-of-month contributions. Weekly and fortnightly savings are converted to monthly equivalents, so the estimate will not match the exact timing on a bank statement. Money added earlier in a month can earn a different amount under daily bank calculations.
Compare a contribution change with a rate change
Here is an original Howloop example using constant hypothetical rates and monthly deposits. Start with $5,000, add $400 a month and save for ten years at 4% a year. The model ends at $66,354, of which $53,000 is your own money. Raising the monthly deposit to $450 at the same rate produces $73,717: about $7,362 more, including $6,000 of additional deposits. Keeping deposits at $400 but raising the rate to 4.5% produces $68,314, about $1,960 more than the first scenario. In this example, the extra contribution changes the outcome more. That is a comparison of these inputs, not a universal rule about rates.
Do not turn every month into four weeks
If you save $100 a week, 52 deposits add up to $5,200 a year. Saving $400 each month adds up to $4,800. Those plans differ by $400 before interest, so their ending balances should differ. Howloop converts the weekly plan to $433.33 per month on average, keeping the unrounded value in the calculation. A $200 fortnightly contribution has the same annual total under the 26-fortnight assumption. A real calendar can contain an extra payday, which this simplified model does not schedule.
Check the first month by hand
For the $5,000 example at 4%, divide 4% by twelve. The first month's modelled interest is $16.67. Add that to the opening balance, then add the $400 end-of-month contribution: the closing balance is about $5,416.67. The new deposit does not earn a full month's interest immediately in this model. If your bank statement differs, compare the dates of deposits and withdrawals, the days in the interest period and the rate actually applied before assuming either result is wrong.
Use zero interest as a second reference point
Re-run the same $5,000 opening balance and $400 monthly contribution at 0%. After ten years, the result is exactly $53,000. This is a useful arithmetic check because it removes every interest assumption. It also shows how much of the target depends on deposits continuing. The difference between this run and the 4% run is about $13,354 of modelled interest. A missed contribution changes the deposit total as well as the interest earned later.
Make the number useful
Write down the purpose of the savings, your planned contribution and a realistic review date. Check whether your chosen account has a base rate, an ongoing bonus or a short welcome offer. Compare a lower-rate scenario before committing to a timeframe. If your goal is several years away, remember that a dollar balance does not tell you how much that money will buy by then. The calculator excludes inflation, fees and tax.
Why is the second year's interest $5.25 rather than $5?
Sources & update record
21 September 2026: added a three-step illustrated $100 example and an explanation of interest on interest. Updated the knowledge check to match; retained the detailed guide and source-check date.
Published 18 Sept 2026 · Updated 21 Sept 2026. These dates do not guarantee rules are unchanged.
Published by Howloop. AI assists preparation. This lesson has not been reviewed by a licensed financial adviser. How we check our content →