Compound Interest Calculator
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Future Account Balance:
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Total Principal Invested:
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Total Interest Earned:
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Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world." Unlike simple interest, where you only earn money on your initial principal, compound interest allows you to earn interest on both your money and the interest it has already accrued. Over time, this creates an exponential growth curve that can significantly boost your wealth.
How This Calculator Works
This calculator determines the future value of your investments by accounting for:
- Initial Investment: The lump sum you start with.
- Monthly Contributions: Regular additions to your investment portfolio.
- Annual Interest Rate: The expected yearly return on investment (ROI).
- Compounding Frequency: This calculator assumes interest is compounded monthly, which is standard for most savings accounts and investment funds.
Real-World Example
Consider an investor who starts with $5,000 and contributes $200 per month for 20 years at an average return of 8%.
Without compound interest, the total savings would be the initial $5,000 plus $48,000 in contributions, totaling $53,000.
However, with compound interest working in their favor, the total account balance would grow to approximately $146,000. That is a difference of over $93,000 generated purely by the interest compounding over time.
The Power of Time
The most critical factor in compound interest is time. The earlier you start investing, the more time your money has to multiply. Even small monthly contributions can grow into substantial sums if left to compound for 30 or 40 years.