Compound Interest Calculator
Calculate compound interest and future value of your investment.
Estimated Summary
Future Value: $0.00
Total Interest: $0.00
Related Financial Tools
Understanding Compound Interest
Key Compound Interest Concepts
Compound interest is often called the "eighth wonder of the world" because of how it can accelerate wealth growth.
With compounding, your interest earns interest, creating an exponential growth effect that becomes more powerful with time.
For example, $10,000 invested at 7% compounded annually becomes $19,672 after 10 years, but grows to $76,123 after 30 years—over 7.6 times your initial investment!
Compounding frequency refers to how often interest is calculated and added to your principal.
Common compounding periods include:
- Annual (once per year)
- Semi-annual (twice per year)
- Quarterly (four times per year)
- Monthly (12 times per year)
- Daily (365 times per year)
- Continuous (theoretical unlimited frequency)
The more frequent the compounding, the more your money grows—though the difference becomes smaller as frequency increases.
The Rule of 72 is a simple way to estimate how long it will take for your investment to double.
Simply divide 72 by your annual interest rate (as a whole number):
Years to double = 72 ÷ Interest Rate
For example:
- At 6% interest: 72 ÷ 6 = 12 years to double
- At 8% interest: 72 ÷ 8 = 9 years to double
- At 12% interest: 72 ÷ 12 = 6 years to double
This rule is handy for quick mental calculations, though it's most accurate for interest rates between 6% and 10%.
The Impact of Time on Compound Interest
The true power of compound interest lies in its relationship with time. The longer your money compounds, the more dramatic the growth becomes.
Why Starting Early Matters:
| Investor | Amount Invested | Investment Period | Value at Age 65 |
|---|---|---|---|
| Early Bird | $5,000/yr for 10 years (Ages 25-35) |
$50,000 total | $602,070 |
| Late Starter | $5,000/yr for 30 years (Ages 35-65) |
$150,000 total | $540,741 |
*Assuming 7% annual return compounded annually
This demonstrates why financial experts often say, "The best time to start investing was yesterday. The second best time is today."
Real-Life Compound Interest Scenarios
Planning for Education
- Initial Investment: $10,000
- Monthly Addition: $200
- Years to Grow: 18
- Interest Rate: 6%
- Compounding: Monthly
- Future Value: $93,040
- Total Invested: $53,200
- Interest Earned: $39,840
The Wilson family started a college fund when their daughter was born, investing $10,000 initially and adding $200 monthly. The power of compound interest helped them build enough for tuition by her 18th birthday.
Long-Term Retirement Planning
- Initial Investment: $5,000
- Monthly Addition: $500
- Years to Grow: 30
- Interest Rate: 7%
- Compounding: Monthly
- Future Value: $591,756
- Total Invested: $185,000
- Interest Earned: $406,756
Michael started investing for retirement at age 35, consistently contributing $500 monthly to his retirement accounts. Thanks to compound interest, by age 65, his investment had grown to nearly $600,000.
Building Financial Security
- Initial Investment: $2,000
- Monthly Addition: $300
- Years to Grow: 5
- Interest Rate: 4%
- Compounding: Monthly
- Future Value: $22,467
- Total Invested: $20,000
- Interest Earned: $2,467
Sophia wanted to build a robust emergency fund to cover 6 months of expenses. She started with $2,000 and consistently added $300 monthly to a high-yield savings account.
Frequently Asked Questions
Simple interest is calculated only on the original principal amount, while compound interest is calculated on both the principal and the accumulated interest from previous periods.
| Comparison | Simple Interest | Compound Interest |
|---|---|---|
| Calculation Base | Principal only | Principal + Accumulated interest |
| Growth Pattern | Linear (steady) | Exponential (accelerating) |
| Formula | A = P(1 + rt) | A = P(1 + r/n)nt |
| Example ($10,000 at 5% for 10 years) |
$15,000 ($5,000 interest) |
$16,289 ($6,289 interest) |
Over longer periods, the difference becomes even more dramatic. This is why compound interest is particularly powerful for long-term investments like retirement accounts.
Compounding frequency refers to how often interest is calculated and added to your principal. The more frequently interest compounds, the more your money grows—though the impact diminishes as frequency increases.
Example: $10,000 invested at 6% annual interest for 10 years
| Compounding Frequency | Future Value | Effective Yield |
|---|---|---|
| Annual (1x/year) | $17,908.48 | 6.00% |
| Semi-annual (2x/year) | $18,140.85 | 6.09% |
| Quarterly (4x/year) | $18,260.79 | 6.14% |
| Monthly (12x/year) | $18,343.84 | 6.17% |
| Daily (365x/year) | $18,393.57 | 6.18% |
As you can see, increasing compounding frequency does increase returns, but with diminishing gains. The biggest jump occurs between annual and semi-annual compounding, while the difference between monthly and daily compounding is much smaller.
When evaluating investment options, consider both the stated interest rate and the compounding frequency to understand the true annual yield.
Many financial instruments and accounts offer compound interest. Here are some common options:
Savings & Fixed-Income Options:
- High-yield savings accounts - Typically compound daily or monthly (1-4% APY)
- Certificates of Deposit (CDs) - Compound daily, monthly, or quarterly (2-5% APY depending on term)
- Money market accounts - Usually compound daily (1-4% APY)
- Treasury bonds and notes - Typically compound semi-annually (variable rates)
- Corporate bonds - Often compound semi-annually (3-8% depending on risk)
Growth-Oriented Investments:
- Dividend stocks with reinvestment plans (DRIPs) - Dividends automatically buy more shares
- Mutual funds and ETFs with dividend reinvestment - Earnings purchase additional shares
- Real Estate Investment Trusts (REITs) - Many offer dividend reinvestment programs
Retirement Accounts:
- 401(k), 403(b), and IRA accounts - Tax advantages enhance compound growth
- Roth IRAs - Tax-free growth provides maximum compounding benefit
The key to maximizing compound interest is to:
- Start as early as possible
- Make regular contributions
- Reinvest all earnings
- Choose investments with competitive interest rates or returns
- Minimize fees that eat into your returns
Inflation reduces the purchasing power of your money over time, which impacts the real returns from compound interest:
- Nominal return - The stated interest rate or percentage gain before accounting for inflation
- Real return - The effective return after subtracting the inflation rate
For example, if your investment earns 7% annual compound interest but inflation is 3%, your real return is approximately 4%.
Important: To build wealth effectively, your investment returns should exceed the inflation rate. Otherwise, despite seeing your account balance grow, your purchasing power might actually be declining.
Strategies to Counter Inflation:
- Invest in growth assets like stocks and real estate that have historically outpaced inflation
- Consider Treasury Inflation-Protected Securities (TIPS) which adjust with inflation
- Diversify your portfolio to include assets that perform well during inflationary periods
- Regularly reassess your investment returns against current inflation rates
Over long periods, the stock market has delivered average returns of 7-10%, which has historically outpaced inflation (which averages 2-3% annually in developed economies).
While compound interest is excellent when you're saving or investing, it works against you when you're borrowing. Here's how compound interest can be a double-edged sword:
The Dark Side of Compound Interest: Debt
- Credit card debt - With interest rates often between 15-25% compounded daily or monthly, balances can grow rapidly if only minimum payments are made
- Payday loans - These can have compound interest rates equivalent to 300-700% annually
- Interest-only loans - Not paying down principal means the debt never decreases
- Unpaid taxes - Tax authorities often charge compound interest and penalties on unpaid taxes
| Example | $5,000 Credit Card Debt |
|---|---|
| Interest Rate | 18% APR compounded monthly |
| Minimum Payment | $125 (2.5% of balance) |
| Time to Pay Off | 273 months (22+ years) |
| Total Interest Paid | $7,733 (155% of original balance) |
This example illustrates how devastating compound interest can be when working against you. The interest paid exceeds the original loan amount by over 1.5 times!