Calculate Compound Interest
This calculator provides estimates for educational and informational purposes. Actual investment returns vary and past performance does not guarantee future results. Consult a qualified financial advisor.
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," it causes wealth to grow at an accelerating rate over time. Albert Einstein reportedly called compound interest "the eighth wonder of the world."
Unlike simple interest, which is calculated only on the original principal, compound interest grows exponentially. This makes it one of the most powerful tools for building long-term wealth through savings and investments.
The Compound Interest Formula
A = P(1 + r/n)nt
A = Future Value
The total amount including principal and interest.
P = Principal
The initial investment or deposit amount.
r = Annual Rate
The annual interest rate (as a decimal).
n = Compounding Frequency
Number of times interest compounds per year.
t = Time in Years
The number of years the money is invested or saved.
With Regular Contributions
A = P(1 + r/n)nt + PMT × [((1 + r/n)nt – 1) / (r/n)]
Where PMT is the regular contribution amount per compounding period.
Impact of Compounding Frequency
The more frequently interest compounds, the faster your investment grows. Here's how $10,000 at 7% grows over 20 years:
| Frequency | Future Value | Interest Earned |
|---|---|---|
| Annually (1×/yr) | $38,696.84 | $28,696.84 |
| Semi-Annually (2×/yr) | $39,343.05 | $29,343.05 |
| Quarterly (4×/yr) | $39,677.49 | $29,677.49 |
| Monthly (12×/yr) | $39,927.37 | $29,927.37 |
| Daily (365×/yr) | $40,097.57 | $30,097.57 |
Tips to Maximize Compound Interest
Start Early
Time is the most powerful factor. Starting 10 years earlier can double your final balance.
Contribute Regularly
Consistent monthly contributions, even small ones, add up dramatically over decades.
Reinvest Earnings
Don't withdraw interest or dividends. Reinvesting keeps the compounding cycle going.
Minimize Fees
High fees erode returns. Choose low-cost index funds and watch expense ratios.
Be Patient
Compounding is slow at first but accelerates dramatically in later years. Stay the course.
Tax-Advantaged Accounts
Use 401(k), IRA, or Roth IRA to let compound interest work without annual tax drag.
Frequently Asked Questions
What is compound interest?
Interest on both the principal and previously earned interest. It grows exponentially, unlike simple interest which only grows linearly.
What is the compound interest formula?
A = P(1 + r/n)^(nt). P = principal, r = annual rate, n = compounding frequency, t = years.
How does compounding frequency matter?
More frequent compounding means slightly higher returns. Daily > monthly > quarterly > annually, though the difference narrows at higher frequencies.
What is the Rule of 72?
Divide 72 by the interest rate to estimate doubling time. At 8%, money doubles in ~9 years (72÷8=9).
How do contributions affect growth?
Regular contributions dramatically accelerate growth because each deposit starts compounding immediately, creating a snowball effect.
What's the difference between APR and APY?
APR is the simple annual rate. APY includes compounding and represents actual annual return. APY ≥ APR.