Compound Interest Calculator
See how your money grows with compound interest. Enter your initial investment, monthly contributions, interest rate, and time period. Watch the power of compounding work for you.
How Compound Interest Works
Compound interest is interest earned on both your original principal and previously earned interest. Unlike simple interest, which only applies to the initial deposit, compound interest creates exponential growth because each interest payment becomes part of the base for the next calculation. The frequency of compounding matters: daily compounding generates slightly more than monthly, which generates more than annual. Most savings accounts compound daily, while many investments compound monthly or quarterly.
Compound Interest Formula
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)]
Where: P = principal, r = annual rate, n = compounding frequency per year, t = years, PMT = periodic contribution
For example, $10,000 invested at 7% compounded monthly for 20 years with $500 monthly contributions grows to approximately $269,362. Of that total, only $130,000 is money you contributed — the remaining $139,362 is pure interest earnings. The longer the time horizon, the more dramatic the compounding effect becomes.
Compound Interest vs Simple Interest
Simple interest is calculated only on the original principal amount. If you invest $10,000 at 5% simple interest, you earn $500 every year regardless of how long the money stays invested. With compound interest at the same rate compounded annually, you earn $500 the first year, $525 the second year, $551.25 the third year, and so on. Over 30 years, simple interest on $10,000 at 5% yields $25,000 in total. Compound interest yields over $43,200 — a difference of more than $18,000 from the same rate. This gap widens dramatically at higher rates and longer time periods, which is why compound interest is essential for long-term wealth building.
Tips to Maximize Compound Interest
Start investing as early as possible. A 25-year-old who invests $200 per month at 8% until age 65 accumulates over $700,000 — while a 35-year-old contributing the same amount ends up with roughly $300,000. That ten-year head start more than doubles the final balance. Choose accounts with higher compounding frequency when possible. Reinvest all dividends and interest rather than withdrawing them. Increase your monthly contributions whenever your income rises, even by small amounts. Use the Rule of 72 to set expectations: divide 72 by your interest rate to estimate how many years it takes to double your money. At 8%, your money doubles approximately every 9 years.