Compound Interest Calculator
See how your money grows over time with the power of compound interest.
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How Compound Interest Works
Compound interest is interest earned on both your initial principal and on previously accumulated interest. Unlike simple interest (calculated only on the principal), compound interest grows exponentially over time. This is why Albert Einstein reportedly called it "the eighth wonder of the world."
The Compound Interest Formula
The formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal (initial investment), r is the annual interest rate (as a decimal), n is the number of times interest compounds per year, and t is the number of years. With regular monthly contributions, the calculation becomes more complex, which is exactly what this calculator handles for you.
The Rule of 72
A quick way to estimate how long it takes to double your money: divide 72 by the annual interest rate. At 7% annual return, your money doubles approximately every 10.3 years. At 10%, it doubles every 7.2 years. This simple rule helps you quickly assess investment opportunities.
Why Starting Early Matters
If you invest $500/month starting at age 25 with a 7% return, you'll have approximately $1.2 million by age 65. If you wait until 35 to start, you'll have only about $567,000 — less than half — even though you only contributed $60,000 less. The extra decade of compounding nearly doubles your wealth.
Compounding Frequency Matters
Money compounds faster with more frequent compounding periods. $10,000 at 10% compounded annually becomes $10,000 after one year. Compounded monthly, it becomes $10,471. Compounded daily, $10,516. While the difference seems small in one year, over decades it can amount to thousands of dollars.
Frequently Asked Questions
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It causes wealth to grow exponentially rather than linearly, which is why starting to invest early is so important.
More frequent compounding produces slightly higher returns. Most savings accounts compound daily, while investments typically compound annually. The difference is modest for most situations, but over long periods it can add up.
The S&P 500 has historically returned about 10% annually (7% after inflation). For conservative planning, many financial advisors recommend using 6-7% for stock investments and 3-4% for bonds or savings accounts.