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Compound Interest Calculator

Project your investment growth over time with customizable interest rates, contribution frequencies, and compounding intervals.

Visualize how your money grows with the power of compounding.

Quick Answer

Compound interest converts your initial principal into a much larger sum over time by earning "interest on interest." The formula is **A = P(1 + r/n)^(nt)**, where P is the principal, r is the annual rate, n is the compounding frequency, and t is the time in years.

Compound Interest Calculator

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How It Works

  1. Divide your annual interest rate by the number of compounding periods per year (e.g., 8% / 12 = 0.0066).
  2. Add 1 to this number (1.0066).
  3. Multiply the number of years by the compounding periods per year (e.g., 10 years × 12 = 120 months).
  4. Raise the rate from step 2 to the power of step 3 (1.0066^120 ≈ 2.22).
  5. Multiply your principal by this result to find the future value.

Formula:

A = P(1 + r/n)^(nt)

Understanding Compound Interest

Compound interest is often called the "eighth wonder of the world." Unlike **simple interest**, which calculates earnings only on your principal, **compound interest** calculates earnings on both your principal AND the accumulated interest from previous periods. ### The Snowball Effect Imagine rolling a snowball down a hill. As it rolls, it picks up more snow. The bigger it gets, the *more* snow it picks up with every rotation. That is compound interest—your money grows faster the longer you leave it alone.

Key Factors

- **Time**: The most powerful variable. Doubling the time can quadruple the return. - **Rate**: Higher is better, but higher returns usually come with higher risk (stocks vs savings). - **Frequency**: Daily compounding pays more than yearly, but the difference is small for small amounts.

Examples

Example A: The Early Saver

Result: Investment: $5,000, Rate: 7%, Time: 30 years, Compounding: Yearly. Result: $38,061.

Example B: Monthly Contributions

Result: Save $200/month for 10 years at 6%. Total Contributed: $24,000. Interest: $8,700. Total: $32,700.

Frequently Asked Questions

What is the Rule of 72?

It is a shortcut to estimate doubling time. Divide 72 by your interest rate. At 8%, money doubles in 9 years (72/8).

Does inflation affect compound interest?

Yes. While your number grows, its purchasing power drops. Real return = Nominal Rate - Inflation Rate.

Is compound interest calculated on the principal only?

No, that is simple interest. Compound interest is calculated on Principal + Accumulated Interest.

What is APY vs APR?

APR is the simple annual rate. APY (Annual Percentage Yield) includes the effect of compounding, making it slightly higher.

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