Compound Interest Calculator
Calculate how your investments grow over time with the power of compounding.
How Does Compound Interest Work?
Compound interest is often called the "eighth wonder of the world" because it allows your money to grow exponentially. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on the initial principal and also on the accumulated interest of previous periods.
Essentially, you are earning "interest on interest." Over long periods, this creates a snowball effect that can significantly increase the value of your savings or investments.
The Compound Interest Formula
Our calculator uses the standard formula for compound interest with additional monthly contributions:
A = P(1 + r/n)nt + PMT × {[(1 + r/n)nt – 1] / (r/n)}
- A = Final amount
- P = Initial principal balance
- r = Annual interest rate (decimal)
- n = Number of times interest compounds per year
- t = Number of years
- PMT = Monthly contribution amount
Realistic Example:
If you start with $10,000, add $500 every month for 20 years at an 8% annual return (compounded monthly), you would end up with approximately $344,633. Of that total, only $130,000 is money you actually contributed—the remaining $214,633 is pure interest earned.
Why the Compounding Frequency Matters
The more frequently interest is compounded, the faster your balance grows. For example, interest compounded daily will result in a slightly higher final balance than interest compounded annually. This is because the interest earned today starts earning its own interest tomorrow, rather than waiting until the end of the year.
Key Strategies for Maximizing Growth
- Start Early: Time is the most critical factor in compounding. Even small amounts can grow significantly over 30 or 40 years.
- Consistency: Making regular monthly contributions (PMT) accelerates the snowball effect.
- Watch the Rate: While you can't control the market, choosing low-fee investments ensures more of that interest stays in your pocket to compound.