Compound Interest Calculator
Calculate compound interest and investment growth over time. See how your savings grow with regular contributions and compound interest.
Calculate Your Investment Growth
What is Compound Interest?
Compound interest is the interest calculated on the initial principal and the accumulated interest from previous periods. It's often called "interest on interest" and can significantly boost your investment returns over time.
Example Calculation
With a $10,000 initial investment, 7% annual return, and $500 monthly contributions over 10 years:
- • Total invested: $70,000.00
- • Interest earned: $36,639.02
- • Final value: $106,639.02
Key Benefits
- • Exponential growth over time
- • Works best with regular contributions
- • Time is your greatest asset
- • Start early for maximum benefit
How Compound Interest Works
Compound interest is one of the most powerful concepts in personal finance. Unlike simple interest, which only calculates interest on the principal amount, compound interest calculates interest on both the principal and previously earned interest.
The Formula
The compound interest formula is: A = P(1 + r/n)^(nt)
- A = Final amount
- P = Principal amount
- r = Annual interest rate (decimal)
- n = Number of times interest is compounded per year
- t = Time in years
Real-World Example
If you invest $10,000 at 7% annual interest with $500 monthly contributions for 10 years:
- • Your total contributions: $70,000.00
- • Interest earned: $36,639.02
- • Final investment value: $106,639.02
- • Your money grew by: 52.3%
Maximizing Compound Interest
Start Early
The earlier you start investing, the more time compound interest has to work. Even small amounts invested early can grow significantly over time.
Be Consistent
Regular contributions, even small ones, can make a huge difference. Set up automatic transfers to ensure you're consistently investing.
Reinvest Dividends
Reinvesting dividends and interest allows your money to compound faster. This is especially important in retirement accounts.
Avoid Withdrawals
Every withdrawal reduces your principal and slows down compound growth. Only withdraw when absolutely necessary.
Frequently Asked Questions
How often is interest compounded?
Interest can be compounded daily, monthly, quarterly, or annually. More frequent compounding generally leads to higher returns, though the difference becomes smaller as the frequency increases.
What's the difference between compound and simple interest?
Simple interest only calculates interest on the principal amount, while compound interest calculates interest on both the principal and previously earned interest.
How can I calculate compound interest manually?
Use the formula A = P(1 + r/n)^(nt) where A is the final amount, P is principal, r is the annual interest rate, n is compounding frequency, and t is time in years.