Compound Interest Calculator
Calculate the power of compound interest with regular contributions
Calculate Compound Growth
See how your investment grows with compound interest over time
Optional monthly/yearly amount
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. This creates a snowball effect where your money grows exponentially over time, which Albert Einstein allegedly called "the eighth wonder of the world."
Formula
A = P(1 + r/n)^(nt)
A = Future value
P = Principal (initial investment)
r = Annual interest rate (decimal)
n = Compounding frequency per year
t = Time in years
The Power of Compounding
The frequency of compounding makes a significant difference. Money that compounds daily will grow more than money that compounds monthly or annually, even with the same interest rate. This is why high-yield savings accounts and investments that compound frequently can produce better returns.
Example
If you invest $10,000 at 7% annual interest compounded monthly for 10 years, with $500 monthly contributions:
- Total contributions: $70,000 ($10,000 + $60,000 in monthly payments)
- Future value: approximately $96,000
- Interest earned: approximately $26,000
Compounding Frequency Impact
The same $10,000 invested at 7% for 10 years produces different results based on compounding frequency:
- Annually: $19,672
- Quarterly: $19,967
- Monthly: $20,097
- Daily: $20,136
Applications
- Retirement planning and 401(k) projections
- College savings plans
- Long-term investment strategies
- Savings account growth estimation
- Loan interest calculations
The Magic of Time
Starting early beats higher contributions. A 25-year-old who invests $200 monthly until 65 at 7% interest accumulates over $500,000. A 35-year-old must invest $400 monthly to reach the same amount - double the contribution for the same result. Those 10 extra years of compounding are worth more than doubled contributions.
Regular Contributions Strategy
Adding regular contributions supercharges compound interest. The calculator models this by treating each contribution as its own compounding principal. Your first contribution compounds for the full period, while later contributions have less time to grow - but the combined effect is powerful.
This is the foundation of successful retirement planning. Whether it's a 401(k), IRA, or taxable brokerage account, consistent contributions plus compound growth build substantial wealth over decades.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. This creates exponential growth as your money earns returns on returns, which Einstein allegedly called the eighth wonder of the world.
How often should investments compound?
More frequent compounding creates higher returns. Daily compounding produces more growth than monthly or annual compounding at the same interest rate. High-yield savings accounts and investments that compound frequently produce better returns.
What's the difference between compound and simple interest?
Simple interest only earns returns on the original principal. Compound interest earns returns on both principal and accumulated interest. Over time, compound interest produces significantly higher returns.