The Federal Reserve’s target inflation rate is 2% per year—most savings accounts do not offer rates close to this, so your money is losing value by staying in a savings account. The higher the rate and your balance, and the more often the balance compounds, the more you’ll earn. Many online savings accounts are attractive because they compound daily instead of monthly. Marcus by Goldman Sachs (read review here) and American Express (read review here) have such accounts. A money market account might be the best compound interest account for someone who wants to grow their savings steadily and securely while maintaining flexible access. Savings accounts, high-yield or otherwise, typically don’t include an ATM or debit card.

That does not mean that all banks will compound your interest monthly. If instead, you had placed the money into an account with an APR of 5% and daily compounding, you’d have $164,866.48 after the end of 10 years. Before we jump into daily and monthly compounding, we must explain why either of them matter.

How compound interest accounts work

Here are some frequently asked questions about our daily compounding calculator. Rebecca Lake is a certified educator in personal finance (CEPF) and a banking expert. She’s been writing about personal finance since 2014, and her work has appeared in numerous publications online. Beyond banking, her expertise covers credit and debt, student loans, investing, home buying, insurance and small business. Assuming your APY remains the same, your savings would grow to $7,454.30, of which $6,500 is what you’ve contributed. If you fast forward 30 years, you’d have $78,118.01 thanks to compound interest, even though you’ve only deposited $36,500.

Limitations of Daily Compounding

Note that if you includeadditional deposits in your calculation, they will be added at the end of each period, not the beginning. But if you’re investing in a mutual fund or setting money aside in a high-yield savings account, you’re not locked in for a specific time period. If you can afford to lock up your savings for a while, CDs offer a way to grow your savings faster without taking on additional risk. Not only are interest rates typically higher on CDs than savings accounts, but they also incentivize you to leave your funds in place to earn interest uninterrupted. Daily compounding interest is the daily interest earned on your savings account balance after interest from the previous day is added.

Compounding Interest Daily vs. Monthly: What’s Better for Your Savings?

However, you might not see the money credited to your account every day. The APR helps to calculate the simple interest that is earned on an investment. We believe everyone should be able to make financial decisions with confidence. Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions.

1. In addition to finding the highest yield, also take advantage of the power of time.
2. You can calculate how much you could earn with NerdWallet’s compound interest calculator.
3. Compounding interest is the process where the interest earned on an investment is reinvested to generate additional interest over time.
4. One of the benefits of a savings account is that when connected to a checking account at the same financial institution, you can transfer funds immediately.

You could lose your investment, so these accounts are best for long-term savings goals. In terms of how much compound interest you can earn with mutual funds, it depends on the fund and what it holds. Some funds are geared toward moderate growth, which means they aim to outpace inflation but won’t make you rich overnight. Other funds are geared toward aggressive growth, which means they aim to beat the market and provide exceptional returns—but they’re also riskier.

Best compound interest accounts

One thing to remember is that you should not confuse accrual and compounding. Unless you have hundreds of thousands of dollars in your account, the difference will be fractions of a penny. If you have $100 in an account with an APY of 2.00%, you’ll have exactly $102 one year later. The two terms are related to «APR» and «APY,» which are both commonly used acronyms that describe the interest that an account pays. Compound interest occurs when the interest you earn on your money starts to earn interest, too. Our calculator stands out due to its accuracy, ease of use, and the option to download results.

With monthly compounding, the bank will calculate interest on your account just once per month. It does not reflect the exact percentage return of your deposits on an annual basis because it does not take effect of compounding into account (the APY does). This figure is used to determine the exact interest to be accrued by (not credited to) your account, depending on the rate of compounding (daily vs. monthly). In addition to finding the highest yield, also take advantage of the power of time. That means contributing to compound interest accounts as early as possible.

Our online calculator simplifies this concept, turning complex calculations into easy-to-understand results. Whether you’re a seasoned investor or just starting, this tool is designed to enhance your financial planning. Experience the ease of obtaining precise calculations and the convenience of downloading results in PDF or XLS formats. The daily reinvest rate is subscription billing vs one the percentage figure that you wish to keep in the investment for future days of compounding. As an example, you may wish to only reinvest 80% of the daily interest you’re receivingback into the investment and withdraw the other 20% in cash. Daily compound interest is calculated using a version of the compound interest formula.To begin your calculation, take your daily interest rate and add 1 to it.