Expert-reviewed and validated for accuracy.
Use this powerful Compound Interest Calculator to quickly determine the future value of an investment or to solve for the missing variable, such as the initial principal, annual rate, or investment time.
Compound Interest Calculator
Calculated Result:
—Detailed Calculation Steps
Click “Calculate” to see the step-by-step process.
Compound Interest Calculator Formula
The standard formula for calculating Future Value (A) with compound interest is:
A = P (1 + r/n)^(nt)
Formula Sources: Investopedia, The Balance
Variables
The calculation uses five key variables, four of which must be provided to solve for the missing fifth:
- Initial Principal (P): The starting amount of money deposited or invested.
- Annual Interest Rate (r): The nominal interest rate per year, expressed as a decimal (e.g., 5% = 0.05).
- Compounding Frequency Per Year (n): The number of times interest is applied per year (e.g., 1 for annually, 4 for quarterly, 12 for monthly, 365 for daily).
- Time Period (t): The number of years the money is invested or borrowed for.
- Future Value (A): The value of the investment after ‘t’ years, including accumulated interest.
Related Financial Calculators
Explore other tools to enhance your financial planning:
- Annualized Return Calculator
- Savings Goal Calculator
- Retirement Contribution Estimator
- Loan Payment Calculator
What is Compound Interest?
Compound interest is the interest earned on both the initial principal and the accumulated interest from previous periods. It is often referred to as “interest on interest,” and it accelerates the growth of your investments over time. Unlike simple interest, which is only calculated on the principal amount, compounding allows your money to work harder.
The effect of compounding depends heavily on the frequency (n) and the time period (t). The more frequently the interest is compounded (e.g., daily vs. annually) and the longer the investment horizon, the greater the impact of compound interest will be on the final future value (A).
How to Calculate Compound Interest (Example)
- Identify Variables: Start with a $1,000 principal (P), an annual rate of 5% (r), compounded annually (n=1), over 2 years (t).
- Convert Rate: Convert the annual rate to a decimal: $r = 0.05$.
- First Year: Calculate the balance after one year: $A_1 = 1000 \times (1 + 0.05/1)^{(1 \times 1)} = \$1,050.00$.
- Second Year: Calculate the balance after the second year, compounding on the new balance: $A_2 = 1000 \times (1 + 0.05/1)^{(1 \times 2)} = \$1,102.50$.
- Final Result: The total compound interest earned is $1,102.50 – 1,000.00 = \$102.50$.
Frequently Asked Questions (FAQ)
What is the difference between simple and compound interest?
Simple interest is only calculated on the original principal amount, while compound interest is calculated on the principal plus all previously accumulated interest. Compound interest always leads to higher returns over time.
Does compounding frequency matter?
Yes, the more frequently the interest is compounded (daily being the highest practical frequency), the greater the final amount will be, assuming the same annual rate (APR).
Is the annual interest rate (r) entered as a percentage or a decimal?
In the calculator input, you enter it as a percentage (e.g., 5). The calculator’s internal JavaScript logic automatically converts it to a decimal (0.05) for the calculation.
Can this calculator solve for the required principal?
Yes. If you input the required Future Value (A), Rate (r), Compounding Frequency (n), and Years (t), the calculator will automatically solve for the minimum Initial Principal (P) required.