Compound Interest Calculator
Your Investment Growth Projection
Your investment growth over time.
About Your Results
This projection shows how your investment could grow with compound interest. The power of compounding can significantly increase your wealth over time.
This calculator provides estimates only. Actual investment returns may vary based on market conditions, fees, taxes, and other factors. Past performance does not guarantee future results. Consult with a financial advisor before making investment decisions.
What is Compound Interest?
Compound interest is often called the "eighth wonder of the world" because of its powerful ability to grow wealth over time. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on both the initial principal and the accumulated interest from previous periods.
This creates a snowball effect where your money grows exponentially rather than linearly. The key factors that determine how quickly your investment compounds are:
- Principal amount: The initial amount you invest
- Interest rate: The annual return on your investment
- Time: How long your money remains invested
- Compounding frequency: How often interest is calculated and added to your balance
- Regular contributions: Additional money you add to your investment over time
How This Compound Interest Calculator Works
This calculator uses the standard compound interest formula to project how your investments will grow over time, taking into account your initial investment, regular contributions, interest rate, and compounding frequency.
The Compound Interest Formula
Future Value = P × (1 + r/n)^(n×t) + PMT × [((1 + r/n)^(n×t) - 1) / (r/n)]
Where:
• P = Principal investment (initial amount)
• r = Annual interest rate (as a decimal)
• n = Number of times interest compounds per year
• t = Number of years
• PMT = Regular contribution amount
The formula has two parts:
1. P × (1 + r/n)^(n×t) calculates growth of initial investment
2. PMT × [((1 + r/n)^(n×t) - 1) / (r/n)] calculates growth of regular contributions
Example Calculation
Let's calculate compound interest for a retirement savings scenario:
- Initial Investment: $10,000
- Monthly Contribution: $500
- Annual Interest Rate: 7%
- Investment Period: 30 years
- Compounding: Monthly
Total Contributions: $10,000 + ($500 × 12 months × 30 years) = $190,000
Future Value: Approximately $712,000
Interest Earned: $712,000 - $190,000 = $522,000
This demonstrates how regular contributions and compound interest can turn $190,000 in contributions into over $700,000 over 30 years.
The Power of Compounding Over Time
Compound interest becomes increasingly powerful over longer time horizons. The longer your money remains invested, the more dramatic the growth becomes due to the exponential nature of compounding.
| Time Period | $10,000 at 7% | With $200/month | Growth Factor |
|---|---|---|---|
| 10 years | $19,672 | $43,763 | 2.0x / 4.4x |
| 20 years | $38,697 | $117,804 | 3.9x / 11.8x |
| 30 years | $76,123 | $262,481 | 7.6x / 26.2x |
| 40 years | $149,745 | $528,290 | 15.0x / 52.8x |
The Rule of 72: A quick way to estimate how long it takes for an investment to double is to divide 72 by the annual interest rate. For example, at 7% interest, your money will double in approximately 10.3 years (72 ÷ 7 = 10.3).
Compound Interest Calculator FAQs
The compounding frequency significantly impacts your total returns, especially over long periods. The more frequently interest compounds, the faster your money grows:
- Annual compounding: Interest calculated once per year
- Semi-annual compounding: Interest calculated twice per year
- Quarterly compounding: Interest calculated four times per year
- Monthly compounding: Interest calculated twelve times per year
- Daily compounding: Interest calculated 365 times per year
For example, $10,000 at 7% interest for 10 years grows to:
• With annual compounding: $19,672
• With monthly compounding: $20,096
• With daily compounding: $20,137
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest. This difference becomes dramatic over time:
- Simple Interest Formula: A = P(1 + rt)
- Compound Interest Formula: A = P(1 + r/n)^(nt)
Example: $10,000 at 7% for 20 years
• Simple Interest: $10,000 × (1 + 0.07×20) = $24,000
• Compound Interest (annual): $10,000 × (1.07)^20 = $38,697
The compound interest result is 61% higher than simple interest over 20 years.
Regular contributions are crucial for wealth building because they:
- Accelerate compounding: Each new contribution starts earning its own compound interest
- Implement dollar-cost averaging: You buy more shares when prices are low and fewer when prices are high
- Build discipline: Regular investing becomes a habit that supports long-term financial goals
- Overcome market volatility: Continuous investing smooths out the effects of market fluctuations
For example, investing $500 monthly at 7% for 30 years grows to approximately $612,000, while a one-time $10,000 investment grows to only $76,000 over the same period. The regular contributions account for 88% of the final balance in this scenario.
Realistic interest rates depend on your investment strategy and risk tolerance:
- Savings accounts & CDs: 1-3% (low risk, low return)
- Bonds: 3-5% (moderate risk, moderate return)
- Stock market (historical average): 7-10% (higher risk, higher return)
- Real estate: 8-12% (varies by property and location)
- Aggressive growth stocks: 10%+ (highest risk, potential for highest returns)
For long-term retirement planning, many financial advisors use 7% as a reasonable estimate for a diversified stock portfolio, adjusted for inflation. However, actual returns will vary year to year, and past performance doesn't guarantee future results.