Guide
Compound Interest With Monthly Contributions
Regular deposits can matter as much as the rate itself. Here’s how monthly contributions change compound growth, explained in everyday language with simple examples you can try.
Published: March 12, 2025 · Updated: December 21, 2025 · By FinToolSuite Editorial
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Enter your starting amount and monthly contribution to see how the curve shifts in real time.
Open the calculatorQuick answer
Each monthly deposit starts compounding once it’s added. Over time, contributions plus time often make the biggest difference. See more on timing styles: lump sum vs monthly investing.
Disclaimer
Educational purposes only; not financial advice. Examples are illustrative; real returns vary and investments can go down as well as up. Fees, taxes, inflation, and rules vary by provider and country.
How monthly contributions change the outcome
A lump sum grows from day one. Monthly contributions join the pot later but add up steadily, and each new deposit starts its own compounding path. The final balance is a mix of:
- Starting amount (principal)
- Total contributions
- Interest earned on both
Worked example #1 (10 years)
Starting: £1,000; Monthly contribution: £50; Rate: 5%; Time: 10 years.
- Total contributed (starting + deposits): ~£7,000
- Approx ending balance: ~£9,700
- Interest earned: ~£2,700
Try this in the calculator.
Worked example #2 (20 years)
Same inputs, but 20 years instead of 10 to show the time effect.
- Total contributed (starting + deposits): ~£13,000
- Approx ending balance: ~£21,000
- Interest earned: ~£8,000
Compounding on contributions matters more with time. Try it in the calculator.
No contributions vs with contributions
Example: £1,000 starting, 5%, 10 years.
| Scenario | Monthly contribution | Ending balance (approx.) |
|---|---|---|
| No contributions | £0 | ~£1,629 |
| With contributions | £50 | ~£9,700 |
Contribution timing
Start-of-month deposits have a bit more time to earn interest; end-of-month is a more conservative assumption. The difference is usually modest but can add up over long horizons.
More on timing: contribution timing: start vs end of month.
Tips for modelling contributions
- Enter the starting amount.
- Add your monthly contribution.
- Choose compounding frequency.
- Compare 2–3 scenarios (e.g., lower/higher rates or 10 vs 20 years).
Common mistakes
- Leaving the monthly contribution at zero by accident.
- Mixing monthly deposits with yearly compounding assumptions.
- Assuming deposits happen at the start when they’re actually end-of-month.
FAQ
How do monthly contributions work with compound interest?
Each deposit is added, then future interest applies to the new balance. Earlier deposits compound longer.
Is a lump sum better than monthly contributions?
A lump sum compounds longer, but monthly contributions keep adding new money. Both can be modeled side by side.
Does it matter if I contribute at the start or end of the month?
Start-of-month contributions earn slightly more. End-of-month is a conservative assumption.
What if I miss some months?
Missing deposits lowers contributions and future interest. You can model this by reducing or pausing contributions.
How much difference do contributions make vs the interest rate?
Over time, consistent contributions can shift results as much as a small rate change.
Should I include inflation/fees/taxes?
You can model a lower rate to reflect after-inflation/fees outcomes. Results are still estimates.
Can I model increasing contributions over time?
Yes. Adjust the monthly amount upward in different scenarios to see the impact.
How do I calculate interest earned vs contributions?
Interest earned = ending balance − (starting amount + total contributions).
Compare with and without contributions
Run a “no contributions” case and a monthly contributions case to see the gap for yourself.
Open the calculator