Nominal and effective rates
For nominal annual rate r compounded m times a year, the effective annual rate is (1 + r/m)^m − 1. At 6% nominal compounded monthly, the effective annual rate is about 6.17%. A quoted effective annual rate should not be treated as the same number as a nominal rate. When comparing tools, match nominal-versus-effective convention, compounding frequency, contribution timing, fees, and taxes.
Sources for this section: Investor.gov: compound interest calculator
Worked example
Start with $10,000, assume 6% nominal compounded monthly, and add $200 at each month-end for 10 years. The monthly rate is 0.5%; 120 deposits total $24,000. Applying monthly growth before each month-end deposit gives an estimated ending balance of $50,969.84, including $16,969.84 of growth above the $34,000 contributed. This is a deterministic illustration, not a forecast.
Investment growth is a planning scenario
The investment-growth and compound-interest calculators both let you select the annual return convention, compounding frequency and contribution timing. Monthly compounding with month-end deposits is one explicit scenario, not an assumption that applies to every setting. Investment growth also compares the entered deposits with making no further contributions under equivalent assumptions; that difference includes deposits and their growth, not returns alone. Neither tool models market volatility, taxes, fees or inflation.
Timing changes the result
A contribution made at the end of a period earns no growth during that period; a beginning-of-period contribution earns for the full period. Annual contributions made at year-end also differ from monthly deposits, even when the annual total matches. Check the calculator’s methodology before comparing results.
Limits
A constant assumed return does not capture volatility, sequence of returns, taxes, inflation, fees, withdrawals, or changes to contributions. An effective-rate equivalent is a mathematical conversion, not evidence that two investment models share all assumptions.