Compound Interest Calculator
Calculate compound interest and see your investment grow over time. Supports regular contributions, different compounding frequencies, and inflation adjustment.
A compound interest calculator shows how your savings or investments grow when earned interest is reinvested and begins generating its own returns. This exponential growth effect is the foundation of long-term wealth building, and understanding it helps you set realistic savings goals and choose the right accounts.
Examples
$10,000 at 5% for 30 years
$500/month contributions
Impact of starting early
Monthly vs Annual Compounding
| Metric | Annual Compounding | Monthly Compounding |
|---|---|---|
| Compounding Periods per Year | 1 | 12 |
| $10,000 at 6% after 10 years | $17,908 | $18,194 |
| $10,000 at 6% after 20 years | $32,071 | $33,102 |
| $10,000 at 6% after 30 years | $57,435 | $60,226 |
| Effective Annual Yield (APY) at 6% | 6.000% | 6.168% |
| Advantage Over Time | Simpler to calculate | Higher returns due to more frequent reinvestment |
| Common In | Bonds, some CDs | Savings accounts, most investment accounts |
Frequently Asked Questions
What is compound interest?
How does compounding frequency affect returns?
Beginning vs end of period contributions?
What is the difference between APR and APY?
How does inflation affect my returns?
What is the Rule of 72?
Related Information
Tips: Start investing early, contribute regularly, choose tax-advantaged accounts when possible, and reinvest dividends. Even small regular contributions can grow significantly over decades.
Key Terms
- Principal
- The initial amount of money deposited or invested before any interest accrues.
- Compounding Frequency
- How often accumulated interest is added to the principal balance -- common frequencies are daily, monthly, quarterly, and annually.
- APY (Annual Percentage Yield)
- The effective annual rate of return that accounts for compounding, always equal to or greater than the nominal APR.
- Future Value
- The projected worth of an investment at a specified date in the future, based on an assumed growth rate.
- Annuity Due
- A series of equal payments made at the beginning of each period, as opposed to an ordinary annuity where payments are made at the end.
- Real Return
- The investment return after adjusting for inflation, representing the actual increase in purchasing power.
References
- Compound Interest Calculator and Explanation — U.S. Securities and Exchange Commission (SEC)
- Saving and Investing: A Roadmap to Your Financial Security — U.S. Securities and Exchange Commission (SEC)
- Interest Rate Statistics — Board of Governors of the Federal Reserve System
Quick Tips
- •Start as early as possible -- even small amounts benefit dramatically from additional years of compounding.
- •Automate your contributions so you invest consistently without relying on willpower or memory.
- •Use tax-advantaged accounts like a 401(k) or IRA to avoid drag from annual taxes on your compounding gains.
- •Reinvest all dividends and interest rather than withdrawing them to maximize the compounding effect.
- •Compare the APY, not the APR, when evaluating savings accounts or CDs, since APY reflects actual compounding.
A compound interest calculator shows how your savings or investments grow when earned interest is reinvested and begins generating its own returns. This exponential growth effect is the foundation of long-term wealth building, and understanding it helps you set realistic savings goals and choose the right accounts.
How to Use This Calculator
Enter your initial investment amount, the annual interest rate (as a percent), and the time period in years. Choose how often interest compounds (e.g. monthly, quarterly, annually). Optionally add regular contributions (monthly or yearly) and whether they are made at the start or end of each period. Click Calculate to see the future value, total interest earned, and a growth breakdown.
Understanding the Formula
Compound interest is calculated using: A = P(1 + r/n)^(nt) where A is the final amount, P is principal, r is the annual interest rate, n is compounding frequency per year, and t is time in years. For continuous compounding: A = Pe^(rt).
Examples
$10,000 at 5% for 30 years
Starting with $10,000 at 5% annual interest compounded monthly for 30 years, you would have $44,677. That is $34,677 in interest earned!
$500/month contributions
Contributing $500 monthly to an account earning 7% annual interest for 20 years would grow to approximately $260,000, with $140,000 from interest alone, demonstrating the power of compound growth.
Impact of starting early
Starting at age 25 vs 35 with the same savings rate can result in nearly double the final amount due to 10 extra years of compound growth.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It is often called "interest on interest" and causes wealth to grow exponentially over time.
How does compounding frequency affect returns?
More frequent compounding results in slightly higher returns. Daily compounding earns more than monthly, which earns more than annually. However, the difference becomes smaller at higher frequencies.
Beginning vs end of period contributions?
Contributing at the beginning of each period earns slightly more because the money has more time to compound. This is called an "annuity due" vs "ordinary annuity".
What is the difference between APR and APY?
APR (Annual Percentage Rate) is the simple interest rate. APY (Annual Percentage Yield) accounts for compounding and shows the actual return you earn in a year. APY is always equal to or higher than APR.
How does inflation affect my returns?
Inflation reduces the purchasing power of money over time. A 7% return with 3% inflation gives you about 4% "real" return. Always consider inflation when planning long-term investments.
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 the interest rate. At 6%, money doubles in approximately 12 years (72/6 = 12).
Assumptions & Limitations
- The calculator assumes a constant interest rate for the entire investment period; actual market returns fluctuate year to year.
- Regular contributions are assumed to remain the same amount throughout the time horizon, without adjustment for inflation or income growth.
- It does not account for taxes on interest or capital gains, which reduce the effective return in taxable accounts.
- Fees, expense ratios, and transaction costs are not included; these reduce real-world investment returns.
- The calculation assumes all interest and dividends are reinvested immediately at the stated rate.
Monthly vs Annual Compounding
| Metric | Annual Compounding | Monthly Compounding |
|---|---|---|
| Compounding Periods per Year | 1 | 12 |
| $10,000 at 6% after 10 years | $17,908 | $18,194 |
| $10,000 at 6% after 20 years | $32,071 | $33,102 |
| $10,000 at 6% after 30 years | $57,435 | $60,226 |
| Effective Annual Yield (APY) at 6% | 6.000% | 6.168% |
| Advantage Over Time | Simpler to calculate | Higher returns due to more frequent reinvestment |
| Common In | Bonds, some CDs | Savings accounts, most investment accounts |
Related Information
Tips: Start investing early, contribute regularly, choose tax-advantaged accounts when possible, and reinvest dividends. Even small regular contributions can grow significantly over decades.
Key Terms
- Principal
- The initial amount of money deposited or invested before any interest accrues.
- Compounding Frequency
- How often accumulated interest is added to the principal balance -- common frequencies are daily, monthly, quarterly, and annually.
- APY (Annual Percentage Yield)
- The effective annual rate of return that accounts for compounding, always equal to or greater than the nominal APR.
- Future Value
- The projected worth of an investment at a specified date in the future, based on an assumed growth rate.
- Annuity Due
- A series of equal payments made at the beginning of each period, as opposed to an ordinary annuity where payments are made at the end.
- Real Return
- The investment return after adjusting for inflation, representing the actual increase in purchasing power.
References
- Compound Interest Calculator and Explanation — U.S. Securities and Exchange Commission (SEC)
- Saving and Investing: A Roadmap to Your Financial Security — U.S. Securities and Exchange Commission (SEC)
- Interest Rate Statistics — Board of Governors of the Federal Reserve System