Compound Interest Calculator

What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest from previous periods. It's often called "interest on interest" and is a powerful wealth-building tool because your money earns returns on both your original investment and the growth it has already generated.

How to Use This Calculator

1. Enter Principal Amount: Input your initial investment or starting balance
2. Set Interest Rate: Enter the annual interest rate as a percentage
3. Choose Time Period: Select how many years you want to grow your money
4. Select Compounding Frequency: Choose how often interest compounds
5. Add Regular Contributions (optional): Include monthly additions to your investment
6. Review Results: See your projected growth and earnings

Understanding Your Results

Final Balance

The total value of your investment at the end of the time period, including all principal, contributions, and earned interest.

Total Interest Earned

The amount of money your investment has generated through compound interest alone - this is pure growth.

Principal vs. Interest

See the breakdown between money you contributed and money earned through compounding.

The Compound Interest Formula

Without Regular Contributions:

A = P(1 + r/n)^(nt)

With Regular Contributions:

A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]

Where:

• A = Final Amount
• P = Principal (initial investment)
• r = Annual interest rate (decimal)
• n = Compounding frequency per year
• t = Time in years
• PMT = Regular contribution amount

Compounding Frequency Comparison

The more frequently interest compounds, the more you earn. Daily compounding can result in significantly higher returns over long periods compared to annual compounding.

The Power of Compound Interest Over Time

Here's how $10,000 grows at 7% annual interest over different time periods:

Strategies to Maximize Compound Interest

1. Start Early

Time is the most powerful factor in compound interest. Starting 10 years earlier can more than double your final balance.

2. Don't Touch Your Investments

Withdrawing from your investment interrupts the compounding process and significantly reduces your final amount.

3. Reinvest Dividends

Automatically reinvesting dividends adds to your principal, generating additional compound growth.

4. Increase Contributions Over Time

As your income grows, increasing your regular contributions accelerates wealth building.

5. Choose Higher Compounding Frequencies

When possible, select investments that compound more frequently.

Frequently Asked Questions

What's the difference between simple and compound interest?

Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal plus all accumulated interest, resulting in exponential growth.

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 interest rate. At 8% interest, your money doubles in approximately 72 ÷ 8 = 9 years.

How does inflation affect compound interest?

Inflation reduces the purchasing power of your money. For real returns, subtract the inflation rate from your nominal interest rate.

What investments offer compound interest?

Savings accounts, CDs, bonds, dividend-reinvesting stocks, mutual funds, and retirement accounts (401(k), IRA) all benefit from compounding.

Is compound interest always positive?

Compound interest works against you with debt (like credit cards), where interest compounds on the amount you owe. It's crucial to pay off high-interest debt quickly.

Note: This calculator provides estimates for educational purposes. Actual investment returns vary based on market conditions, fees, and other factors. Consult a financial advisor for personalized advice.