Finance Tools/Compound Interest Calculator
Compound Interest Calculator
Calculate compound interest and investment growth
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Compound Interest Guide
Learn how compound interest grows your money over time
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It's often called 'interest on interest' and is the key to long-term wealth building through exponential growth.
How to Use This Calculator
- Enter your initial investment (principal amount)
- Set the annual interest rate
- Choose the compounding frequency (monthly, quarterly, yearly)
- Specify the investment period in years
Investment Tips
- Start early: Time is the most powerful factor in compound growth
- Higher frequency compounding yields slightly better returns
- Regular contributions dramatically accelerate wealth building
Formula Used
A = P(1 + r/n)^(nt) where P is principal, r is annual rate, n is compounding frequency, and t is time in years. All calculations are performed instantly in your browser.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest. For example, $10,000 at 5% for 10 years yields $15,000 with simple interest but $16,289 with annual compounding—a $1,289 difference.
How does compounding frequency affect my returns?
More frequent compounding generates higher returns because interest starts earning interest sooner. For $10,000 at 5% over 10 years: annual compounding yields $16,289, monthly yields $16,470, and daily yields $16,487. The difference is more pronounced with higher rates and longer periods.
What is the Rule of 72 and how accurate is it?
The Rule of 72 estimates how long it takes to double your money by dividing 72 by your interest rate. At 6% interest, it takes approximately 72÷6=12 years to double. This rule is most accurate for rates between 6-10% and provides a quick mental calculation for investment planning.
How much should I invest monthly to reach $1 million?
The amount depends on your timeline and expected returns. At 7% annual returns: starting from zero, you'd need about $381/month for 40 years, $820/month for 30 years, or $2,026/month for 20 years to reach $1 million. Starting earlier dramatically reduces the required monthly contribution.
What is a realistic annual return rate to use?
Historical stock market returns average 7-10% annually over long periods (accounting for inflation, it's about 7%). Savings accounts offer 3-5%, bonds 4-6%, and diversified portfolios typically 6-8%. Use conservative estimates for planning—it's better to exceed projections than fall short.