Compound Interest Calculator

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest which is only calculated on the principal, compound interest allows your money to grow exponentially over time. Each compounding period, the interest earned is added to the principal, and future interest is calculated on this new, larger amount.

The more frequently interest compounds, the more you earn. Daily compounding will yield slightly more than monthly, which yields more than quarterly or annually. However, the difference is usually modest unless dealing with large amounts over long periods. For example, $10,000 at 5% annual interest compounded daily earns about $12 more per year than if compounded monthly.

You need four key inputs: the initial principal amount (starting investment), the annual interest rate (as a percentage), the time period (in years), and the compounding frequency (daily, monthly, quarterly, or annually). Optionally, you can include regular contributions to see how periodic deposits accelerate your growth.

Regular contributions significantly boost your investment growth through the combination of consistent deposits and compound interest on both your principal and contributions. Even small monthly contributions can make a huge difference over time. For example, investing $500/month at 7% for 30 years can result in over $600,000, even though you only contributed $180,000.

The Rule of 72 is a quick way to estimate how long it takes to double your money with compound interest. Divide 72 by your annual interest rate to get the approximate number of years. For example, at 8% interest, your investment will double in about 9 years (72 ÷ 8 = 9). This calculator shows the exact growth timeline.

Absolutely! This calculator is perfect for retirement planning. Enter your current savings as the principal, your expected annual return as the interest rate, add your planned monthly contributions, and set the time period to your years until retirement. The results show how your retirement nest egg will grow over time.

Historical stock market returns average around 7-10% annually over long periods, though returns vary significantly year to year. Bonds typically return 3-5%. Savings accounts might offer 0.5-2%. For conservative planning, many financial advisors suggest using 6-7% for diversified stock portfolios and 3-4% for more conservative investments.

While this calculator shows nominal (face value) growth, inflation reduces the purchasing power of your future money. To calculate "real" returns, subtract the inflation rate from your interest rate. For example, if you earn 8% but inflation is 3%, your real return is about 5%. Always consider inflation when planning long-term investments.

Simple interest is calculated only on the principal amount throughout the investment period. Compound interest is calculated on the principal plus all previously earned interest. Over time, this difference becomes dramatic. For example, $10,000 at 5% for 20 years yields $20,000 with simple interest but $26,533 with annual compound interest.

The mathematical calculations are precise based on the inputs provided. However, real-world investment returns fluctuate and are never guaranteed. Market investments can go up or down. Use these calculations as planning tools and estimates rather than guaranteed outcomes. The actual results will depend on market performance and economic conditions.

More frequent compounding does result in slightly higher returns, but the difference is usually small. The interest rate and time period matter much more than compounding frequency. Focus on finding investments with good rates and staying invested long-term rather than worrying about whether interest compounds daily versus monthly.

While you can use it to understand how compound interest affects loans, this calculator is optimized for investments and savings. For loans with fixed payments (mortgages, car loans, etc.), use our Loan Calculator instead, which shows amortization schedules and accounts for regular payments reducing the principal over time.

Most investment vehicles use compound interest or returns: savings accounts, CDs, bonds, dividend reinvestment plans (DRIPs), mutual funds, ETFs, 401(k)s, IRAs, and brokerage accounts. Any investment where earnings are reinvested rather than withdrawn benefits from compounding. The key is to let your returns stay invested to maximize the compounding effect.