Compound Interest Calculator
Watch Your Money Grow Exponentially Over Time
Albert Einstein reportedly called compound interest the "eighth wonder of the world." This powerful calculator shows you exactly how your investments grow over time through the magic of compounding. Enter your initial investment, monthly contributions, and expected return to see your wealth projection year by year.
Open Source & Transparent
All calculations are open source and verifiable on GitHub. We believe in transparency and welcome contributions to improve our tools.
Future Value
Good Growth20 year projection
$300,851
Total Interest Earned
$170,851
Total Contributed
$130,000
Effective APY
7.2%
Years to Double
10.3 years
Quick Start Scenarios
Investment Details
Historical Return Benchmarks
| Investment Type | Avg Return | Risk Level | Action |
|---|---|---|---|
| High-Yield Savings | 5.0% | Very Low | |
| Bond Funds | 5.5% | Low | |
| Balanced Portfolio (60/40) | 7.0% | Medium | |
| S&P 500 Historical Avg | 10.0% | Higher | |
| Aggressive Growth | 12.0% | High |
Investment Summary
Final Balance
$300,851
Total Contributed
$130,000
Interest Earned
$170,851
Balance Breakdown
Compound Interest Tips
- Start early — time is the most powerful factor in compound growth
- Stay consistent — regular contributions matter more than timing
- Reinvest dividends — let your returns compound automatically
- Be patient — compound growth accelerates in later years
Compounding Effect
You're using Monthly compounding. Switching to daily compounding would earn you an additional $1,523 over 20 years.
Understanding Compound Interest
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the original principal, compound interest creates a snowball effect where your money earns interest, and then that interest earns interest.
This exponential growth is why compound interest is considered one of the most powerful concepts in personal finance. Starting early and staying consistent allows compound interest to work its magic, potentially turning modest regular investments into substantial wealth over time.
The Compound Interest Formula
A = P(1 + r/n)nt
A = Final amount (principal + interest)
P = Principal (initial investment)
r = Annual interest rate (decimal)
n = Compounding periods per year
t = Time in years
For continuous compounding, the formula becomes A = Pert, where e is Euler's number (~2.71828). This represents the theoretical maximum compounding frequency.
The Rule of 72
The Rule of 72 is a quick mental math shortcut to estimate how long it takes to double your money. Simply divide 72 by your annual return rate. This rule demonstrates why even small differences in return rates significantly impact long-term growth.
6%
~12 years to double
8%
~9 years to double
10%
~7.2 years to double
12%
~6 years to double
How Compounding Frequency Affects Growth
The more frequently interest compounds, the more you earn. However, the difference between frequencies is often smaller than you might expect. Focus first on consistent contributions and a long time horizon, then optimize compounding frequency.
| Frequency | Periods/Year | $10K at 7% for 20 years |
|---|---|---|
| Annually | 1 | $38,697 |
| Quarterly | 4 | $39,365 |
| Monthly | 12 | $39,487 |
| Daily | 365 | $39,537 |
| Continuously | ∞ | $39,542 |
Note: The difference between annual and continuous compounding is less than $1,000 over 20 years on a $10,000 investment.
Keys to Maximizing Compound Growth
Start Early
Time is the most powerful factor. Investing $500/month from age 25 to 65 at 8% yields more than investing $1,000/month from 35 to 65.
Stay Consistent
Regular contributions matter more than timing the market. Dollar-cost averaging smooths out volatility and builds discipline.
Reinvest Returns
Automatically reinvest dividends and interest. Taking distributions breaks the compounding chain and significantly reduces long-term growth.
Minimize Fees
High expense ratios compound against you. A 1% difference in fees can cost hundreds of thousands over a lifetime of investing.
Frequently Asked Questions
What return rate should I use for planning? ▼
For conservative planning, use 6-7%. The S&P 500 has historically returned about 10% annually, but a lower estimate accounts for inflation, fees, and market volatility. For high-yield savings or CDs, use current rates (4-5%). For bonds, use 5-6%.
Is compound interest taxed? ▼
In taxable accounts, interest and dividends are typically taxed annually. Tax-advantaged accounts (401k, IRA, Roth IRA) let you defer or eliminate taxes, allowing the full amount to compound. This tax-free compounding can significantly boost long-term returns.
How is compound interest different from simple interest? ▼
Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus previously accumulated interest. Over time, compound interest dramatically outperforms simple interest. A $10,000 investment at 7% for 30 years grows to $76,123 with compound interest vs. $31,000 with simple interest.
When does compound interest work against me? ▼
Compound interest works against you with debt. Credit cards, mortgages, and loans compound interest on your balance. This is why paying off high-interest debt should often be prioritized before investing—you're guaranteed a "return" equal to the debt's interest rate.
What's the difference between APR and APY? ▼
APR (Annual Percentage Rate) is the nominal rate without compounding effects. APY (Annual Percentage Yield) reflects the actual return including compounding. A 7% APR compounded monthly equals a 7.23% APY. Always compare APY to APY when evaluating investment options.
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