💰 Compound Interest Calculator
Calculate how your investment grows over time with compound interest
Compound Interest Formula
A = P(1 + r/n)^(nt)
- A: Future Value (final amount)
- P: Principal (initial amount)
- r: Annual interest rate (as a decimal)
- n: Number of times interest compounds per year
- t: Time in years
How to Use This Calculator
- Enter your principal amount – the initial investment or deposit
- Input the annual interest rate as a percentage (e.g., 5 for 5%)
- Select the compounding frequency – how often interest is added (monthly, quarterly, etc.)
- Specify the time period in years you plan to invest
- Results update automatically showing future value, total interest earned, and return percentage
Understanding Compound Interest
What is Compound Interest?
Compound interest is interest calculated on both your initial principal and all previously earned interest. Unlike simple interest which only calculates on the original amount, compound interest creates exponential growth. Each compounding period, interest is added to your principal, and the next period's interest is calculated on this new, larger amount. This "interest on interest" effect is what makes compound interest so powerful for long-term wealth building.
How Compound Interest Works
The formula A = P(1 + r/n)^(nt) captures the magic of compounding. Let's break it down with an example: $1,000 at 5% compounded monthly for 10 years. Each month, 5%/12 = 0.417% is added to your balance. Month 1: $1,000 × 1.00417 = $1,004.17. Month 2: $1,004.17 × 1.00417 = $1,008.36 (notice you earned interest on the $4.17). After 120 months (10 years), this compounds to $1,647.01. The more frequently it compounds, the higher your returns.
The Power of Time and Frequency
Two factors dramatically amplify compound interest: time and compounding frequency. Time: A $1,000 investment at 8% annually becomes $2,159 in 10 years, $4,661 in 20 years, and $10,063 in 30 years—quintupling then doubling again. Frequency: $1,000 at 5% for 10 years yields $1,629 (annual), $1,639 (quarterly), $1,647 (monthly), or $1,649 (daily). While frequency has modest impact, starting early and staying invested has massive impact due to exponential growth.
Real-World Applications
Compound interest works for you in savings accounts, CDs, bonds, dividend-reinvesting stocks, and retirement accounts. It also works against you in credit card debt and loans. Understanding compound interest helps you: 1) Maximize investment returns by starting early, 2) Compare financial products (higher compounding frequency = better returns), 3) Set realistic savings goals, 4) Understand the true cost of debt, 5) Appreciate why time in the market beats timing the market. Even small amounts compound significantly over decades.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest which only calculates on the principal, compound interest allows your money to grow exponentially. The formula is A = P(1 + r/n)^(nt), where interest is added to the principal and future interest calculations are based on this new, larger amount.
How is compound interest calculated?
Compound interest uses the formula A = P(1 + r/n)^(nt) where A is the future value, P is the principal, r is the annual interest rate (as a decimal), n is the compounding frequency per year, and t is time in years. For example, $1,000 at 5% compounded monthly for 10 years: A = 1000(1 + 0.05/12)^(12×10) = $1,647.01.
What's the difference between compounding frequencies?
Compounding frequency determines how often interest is added to your principal. Annual (n=1) compounds once per year, semi-annual (n=2) twice, quarterly (n=4) four times, monthly (n=12) twelve times, and daily (n=365) every day. More frequent compounding yields slightly higher returns because interest earns interest sooner. For example, $1,000 at 5% for 10 years: annually = $1,628.89, monthly = $1,647.01, daily = $1,648.66.
Why is compound interest powerful?
Compound interest creates exponential growth because you earn interest on your interest. Over time, this "snowball effect" dramatically increases returns. Albert Einstein allegedly called it "the eighth wonder of the world." For example, $1,000 at 8% annually: after 10 years = $2,158.92, after 20 years = $4,660.96, after 30 years = $10,062.66. The longer you invest, the more powerful compounding becomes.
How accurate is this calculator?
This calculator uses the standard compound interest formula A = P(1 + r/n)^(nt) for mathematically precise calculations. Results are accurate to at least 2 decimal places for all typical investment scenarios. For actual investment decisions, consult with a financial advisor as real returns vary with market conditions.
Is this tool free to use?
Yes! This compound interest calculator is completely free with no hidden costs, subscriptions, or limitations. Use it for investment planning, savings goals, or educational purposes.
Is my data private?
Absolutely. All calculations are performed locally in your browser. Your financial information never leaves your device and is not stored on any server.