Compound Interest Calculator
Calculate compound interest and see how your money grows over time. Perfect for investment planning, savings goals, and retirement calculations. Visualize the power of compound interest with detailed breakdowns and interactive results.
What is Compound Interest?
Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," it makes your money grow faster than simple interest, which is calculated only on the principal amount. Albert Einstein allegedly called compound interest "the eighth wonder of the world."
How Compound Interest Works
When you invest money, you earn interest on your investment. With compound interest, that interest is added to your principal, and in the next period, you earn interest on both your original investment and the interest you've already earned. This creates exponential growth over time.
A = P(1 + r/n)^(nt)
P = Principal (initial investment)
r = Annual interest rate (decimal)
n = Number of times interest is compounded per year
t = Number of years
Compounding Frequencies Explained
- Annually: Interest is calculated and added once per year
- Semi-Annually: Interest is calculated twice per year (every 6 months)
- Quarterly: Interest is calculated four times per year (every 3 months)
- Monthly: Interest is calculated 12 times per year (most common for savings accounts)
- Weekly: Interest is calculated 52 times per year
- Daily: Interest is calculated 365 times per year (maximum compound frequency)
More frequent compounding means faster growth. The difference becomes more significant with higher interest rates and longer time periods.
Real-World Examples
Initial: $10,000
Monthly contribution: $500
Rate: 8% annually
Time: 30 years
Result: ~$745,000
Initial: $5,000
Monthly contribution: $200
Rate: 6% annually
Time: 18 years
Result: ~$82,000
Initial: $1,000
Monthly contribution: $300
Rate: 4% annually
Time: 5 years
Result: ~$20,000
The Power of Starting Early
Time is the most powerful factor in compound interest. Starting to invest early, even with smaller amounts, can result in much larger gains than waiting and investing larger amounts later.
Example: The Value of Time
$200/month for 40 years
Total invested: $96,000
Final: $622,000
$200/month for 30 years
Total invested: $72,000
Final: $296,000
Both earn 7% annually. Investor A ends up with over twice as much by starting just 10 years earlier!
Investment Strategies
- Start as early as possible: Time is your greatest asset in compound interest
- Be consistent: Regular contributions, even small ones, add up significantly
- Reinvest dividends: Let your earnings compound for maximum growth
- Choose higher interest rates wisely: Balance risk and reward appropriately
- Avoid early withdrawals: Breaking the compound cycle reduces long-term gains
- Consider tax-advantaged accounts: IRAs and 401(k)s let your money compound tax-free
- Increase contributions over time: As income grows, increase investment amounts
- Stay invested long-term: Compound interest works best over decades, not years
Simple vs. Compound Interest
| Feature | Simple Interest | Compound Interest |
|---|---|---|
| Calculation | Interest on principal only | Interest on principal + accumulated interest |
| Growth | Linear (steady rate) | Exponential (accelerating) |
| Formula | I = P × r × t | A = P(1 + r/n)^(nt) |
| Example (10 years) | $10,000 at 7% = $17,000 | $10,000 at 7% = $19,672 |
| Best For | Short-term loans | Long-term investments |
Frequently Asked Questions
What is a good compound interest rate?
It depends on the investment type. Historically, the stock market has averaged about 10% annually. Conservative savings accounts might offer 2-4%. A diversified portfolio with moderate risk typically aims for 6-8% annually.
How does compounding frequency affect returns?
More frequent compounding leads to slightly higher returns. For example, $10,000 at 5% for 10 years: annually = $16,289, monthly = $16,470, daily = $16,487. The difference is more noticeable with higher rates and longer periods.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual interest rate. Example: at 8% interest, 72 ÷ 8 = 9 years to double your investment.
Should I pay off debt or invest?
Generally, pay off high-interest debt (credit cards, personal loans) before investing. If your debt interest rate is higher than your expected investment returns, paying off debt is effectively a guaranteed return at that rate.
Are inflation and taxes considered in this calculator?
No, this calculator shows nominal returns. Real returns (after inflation) are typically 2-3% lower. Tax considerations vary by account type (taxable, IRA, 401k) and should be factored into your planning.
Is my financial data stored or shared?
No, all calculations happen entirely in your browser using JavaScript. Your financial information never leaves your device and is not stored or transmitted anywhere.