Compound Interest Calculator
See how your investments grow over time with the power of compound interest.
How long you plan to invest
Investment Summary
Final Balance
$302,370.09
Total Contributions
$130,000.00
Total Interest Earned
$172,370.09
132.6% return on contributions
Effective Annual Rate
7.23%
With monthly compounding
Investment Growth Over Time
Interest Earned Per Year
How Does Compound Interest Work?
Compound interest is one of the most powerful concepts in finance. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on the principal plus all previously accumulated interest. This creates a snowball effect where your money grows faster and faster over time.
The compound interest formula is:
A = P(1 + r/n)nt
Where:
- A = Final amount (principal + interest)
- P = Principal (initial investment)
- r = Annual interest rate (as a decimal)
- n = Number of times interest compounds per year
- t = Number of years
For example, if you invest $10,000 at 7% annual interest compounded monthly for 20 years, your investment would grow to approximately $40,387.39 without any additional contributions. Adding regular monthly contributions accelerates this growth even further, which is why consistent investing is so important.
The key takeaway is that time is your greatest ally. The earlier you start investing, the more time compound interest has to work in your favor. Even small monthly contributions can grow into 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. Unlike simple interest, which is calculated only on the principal, compound interest allows your money to grow exponentially over time as you earn "interest on interest."
How does compound frequency affect my returns?
The more frequently interest compounds, the more you earn. Daily compounding yields slightly more than monthly, which yields more than quarterly or annually. However, the difference between monthly and daily compounding is relatively small. The biggest jump is from annual to quarterly or monthly compounding.
What is the Rule of 72?
The Rule of 72 is a simple way to estimate how long it takes for an investment to double. Divide 72 by your annual interest rate to get the approximate number of years. For example, at 8% interest, your money doubles in approximately 72 / 8 = 9 years.
How much should I invest monthly to reach my goal?
The amount depends on your target balance, time horizon, and expected return. Use this calculator to experiment with different monthly contribution amounts. Generally, starting early with consistent contributions, even small ones, is more effective than investing larger amounts later due to the power of compounding.