Compound Interest Calculator
Visualize the power of compounding. Calculate how much your savings will grow with regular contributions and interest over any time period.
Example Calculation
See how an initial investment of $10,000 grows over 10 years at 7% interest compounded monthly with a $100 monthly contribution.
The Formula
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]
Step 1: Calculate Initial Principal Growth
$10,000 × (1 + 0.07/12)^(12 × 10)
$10,000 × (1.005833)^120 = $20,096.61
Step 2: Calculate Contributions Growth
$100 × [((1 + 0.07/12)^120 - 1) / (0.07/12)]
$100 × [1.00966 / 0.005833] = $17,308.48
Note: You contributed $22,000 total ($10k principal + $12k monthly savings). The remaining $15,405.09 is pure interest earned.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods. Unlike simple interest, which only applies to the principal, compound interest allows your wealth to grow exponentially.
How is it different from simple interest?
Simple interest is calculated only on the principal amount of a loan or deposit. Compound interest is calculated on the principal PLUS all interest accumulated previously. This means simple interest is linear, while compound interest is exponential.
How often should interest be compounded?
The more frequently interest is compounded, the faster your balance grows. Monthly compounding results in more interest than annual compounding, and daily compounding is even better. Most high-yield savings accounts compound daily or monthly.
What is the Rule of 72?
The Rule of 72 is a quick mental math shortcut to estimate how long it takes to double your money at a fixed annual rate. Simply divide 72 by the annual interest rate (e.g., at a 10% rate, your money doubles in roughly 7.2 years).
Does compound interest work for debt too?
Yes, compound interest works against you in the case of debt. Credit cards often compound interest daily, which is why carrying a balance can be so expensive — you are paying interest on the interest you haven't paid off yet.
What is the effective annual rate?
The Effective Annual Rate (EAR) is the real return on an investment or the real interest rate on a loan after accounting for compounding. It is usually higher than the stated "nominal" rate because it reflects the impact of compounding periods.
This calculator provides estimates for informational purposes only. Actual financial growth depends on market fluctuations, tax treatment, and specific financial product terms. Consult a qualified professional before making investment decisions.