- Interest for a small time slice: I = B × r × Δt, where B is principal balance, r is annual rate (decimal), and Δt is fraction of a year.
- Accrued interest bucket: interest is added to an accrued total until a posting date.
- Capitalization (posting): on each posting boundary, B := B + AccruedInterest, then accrued resets to zero.
- Effective annual rate estimate (based on posting frequency): EAR = (1 + r/m)^m − 1, where m is postings per year.
- Enter your starting principal and annual interest rate.
- Choose how often interest is accrued and how often it is posted into principal.
- Add a recurring deposit or withdrawal and select its frequency and timing.
- Click Calculate to view the summary and capitalization schedule.
- Use Download CSV or Download PDF to export the schedule table.
| Scenario | Principal | Annual Rate | Accrual | Posting | Contribution | Term |
|---|---|---|---|---|---|---|
| Starter savings plan | USD 10,000.00 | 8.50% | Daily | Monthly | USD 100.00 / month (begin) | 3.00 years |
| Quarterly posting, no deposits | USD 25,000.00 | 6.25% | Monthly | Quarterly | USD 0.00 | 2.50 years |
| Debt balance with withdrawals | USD 7,500.00 | 12.00% | Weekly | Monthly | USD -50.00 / week (end) | 1.00 years |
Capitalization Mechanics
Interest capitalization moves accumulated interest into principal on posting dates. For example, a 10,000 balance at 8.50% accrues about 70.83 in one month (10,000×0.085÷12). When posted monthly, the next month’s interest is calculated on 10,070.83, increasing growth without changing the stated rate. In loan accounting, this same step increases the outstanding principal and can raise future interest expense.
Frequency Impact
Posting frequency changes the effective annual rate. With an 8.50% nominal rate, monthly posting yields an effective rate near 8.83%, while annual posting stays at 8.50%. Quarterly posting typically lands between those values. Over three years, monthly posting creates 36 posting events, so interest is added to principal earlier and more often, strengthening compounding.
Contribution Sensitivity
Recurring deposits amplify compounding because each contribution earns interest after it arrives. A 100 monthly deposit beginning-of-period adds 1,200 per year to principal flow. At 8.50% with monthly posting, the contribution stream alone can generate roughly 150–250 interest in year one, then more as the base grows. If deposits occur at period end, the first year interest can be lower because each deposit starts earning later.
Accrual Versus Posting
Accrual frequency controls how precisely interest is tracked between posting dates. Daily accrual with monthly posting accumulates interest smoothly, then posts it in a lump. Weekly accrual produces slightly different interim totals, especially under a 360-day convention. The model computes interest per slice using I = B×r×Δt, where Δt matches the chosen accrual cadence.
Reading the Schedule
Each schedule row is a posting event with start balance, contributions inside the period, accrued interest, and end balance. Use the time column to align rows with your budgeting cycle and to spot boundary effects. “Interest accrued” is the total earned since the prior posting, while “posted” is the portion capitalized on that row. If you disable end-of-term posting, any remaining accrued interest stays separate from principal for reporting. Adjust rounding to four decimals when auditing, then switch to two decimals for presentation and exports later.
FAQs
What is interest capitalization?
It is the posting of accrued interest into the principal balance. After posting, future interest is calculated on the higher principal, which can accelerate growth or increase loan costs.
How is this different from compounding?
Compounding describes interest earning interest. Capitalization is the accounting event that moves accrued interest into principal, enabling that compounding to occur under your chosen posting schedule.
What does accrual frequency change?
It changes how often interest is calculated and accumulated between postings. Higher accrual frequency improves precision for partial periods and boundary timing, while capitalization frequency controls when that accrued amount becomes part of principal.
Why does contribution timing matter?
Beginning-of-period contributions start earning interest immediately within the period. End-of-period contributions earn interest starting next period, so totals can be slightly lower over the same term, especially with frequent posting.
What happens if I disable end-of-term posting?
The calculator will stop posting any remaining accrued interest at maturity. Your schedule will show the last posted balance, while the unposted interest remains separate for reporting or reconciliation.
Can I model withdrawals or negative rates?
Yes. Enter a negative contribution to represent regular withdrawals, and the model will reduce principal accordingly. Negative interest rates are also allowed, producing negative accrued interest and lower balances over time.