Compound Interest Calculator

This compound interest calculator shows how your money grows over time when you earn interest on both your initial investment and on previously earned interest. Here's how to get accurate projections:

1. Enter your initial investment (principal). This is the lump sum you're starting with — whether it's savings, an inheritance, or an existing investment balance.
2. Set your monthly contribution. Enter the amount you plan to add regularly. Even small monthly contributions make a dramatic difference over long time periods thanks to compounding.
3. Choose your contribution frequency. Select how often you'll add money — monthly, quarterly, or annually. Monthly contributions compound faster because money enters the market sooner.
4. Set the annual interest rate. For savings accounts, use your bank's APY (typically 0.5-5%). For stock market investments, historical averages are around 7-10% annually before inflation. Be conservative with estimates.
5. Choose compounding frequency. This is how often interest is calculated and added to your balance. Daily compounding earns slightly more than monthly, which earns more than annually — but the difference shrinks at lower interest rates.
6. Set your time period. Compounding's power shows over decades. Try comparing 10, 20, and 30 years to see how the growth curve accelerates over time.

The chart shows your balance growing over time, breaking down how much came from your contributions versus earned interest. The longer your time horizon, the more interest dominates the total.

The Compound Interest Formula

Compound interest follows the formula A = P(1 + r/n)^(nt), where P is your principal, r is the annual rate, n is the compounding frequency, and t is time in years. The key insight: your balance grows exponentially rather than linearly because each period's interest earns interest in future periods.

Compound vs. Simple Interest

Simple interest only applies to your original principal: invest $10,000 at 5% simple interest and you earn $500 every year, regardless of how much has accumulated. Compound interest applies to the growing total: after year one you earn 5% on $10,500, then 5% on $11,025, and so on. Over 30 years, $10,000 at 5% simple interest becomes $25,000 — but at 5% compound interest it becomes $43,219. That's 73% more just from compounding.

The Rule of 72

A quick mental shortcut: divide 72 by your interest rate to estimate how many years it takes to double your money. At 6% annual returns, your money doubles roughly every 12 years (72 / 6 = 12). At 8%, it doubles every 9 years. This illustrates why even small rate differences matter enormously over decades.

Why Starting Early Matters More Than Investing More

Time is the most powerful factor in compound growth. Someone who invests $200/month starting at age 25 will typically have more at age 65 than someone who invests $400/month starting at age 35, despite investing less total money. The extra decade of compounding creates more wealth than doubling the contribution. This is why financial advisors emphasize starting as early as possible, even with small amounts.

Compounding Frequency: Does It Really Matter?

Switching from annual to daily compounding on a $10,000 investment at 5% adds about $12 extra per year. The effect is noticeable at higher rates or larger balances, but for most investors, the difference between monthly and daily compounding is negligible. Focus on maximizing your rate of return and contribution amount rather than compounding frequency.