Compound Interest Calculator
Compound Interest Calculator
Compound interest is one of the most powerful concepts in finance. Albert Einstein reportedly called it the eighth wonder of the world.
Conversion Formula
A = P(1 + r/n)^(nt) calculates growth of the initial principal. Monthly contributions use the future value of annuity formula.
Step-by-Step Examples
$10,000, 7%, 10 years, monthly = $20,096.61
Your money doubles in about 10 years at 7%
$5,000 + $200/mo, 8%, 30 years = $344,482
Monthly contributions dramatically boost the result
History
Compound interest has been used since ancient Mesopotamia. The concept was formalized by mathematicians in the 17th century.
Common Use Cases
- Retirement planning
- Savings goal estimation
- Investment comparison
- Understanding debt growth
Frequently Asked Questions
What is compound interest?
Compound interest is interest earned on both the initial principal and previously accumulated interest — "interest on interest."
How often should interest compound?
More frequent compounding yields slightly higher returns. Daily compounding earns marginally more than monthly, which earns more than annually.
What is the Rule of 72?
Divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 7%, money doubles in ~10.3 years.
How does compound interest differ from simple interest?
Simple interest is calculated only on the principal. Compound interest includes interest on accumulated interest, leading to exponential growth.
What is a realistic annual return?
The S&P 500 has historically averaged ~10% annually before inflation (~7% after inflation). Savings accounts yield 0.5-5% depending on rates.
Does this calculator account for taxes?
No, this shows pre-tax returns. Actual returns depend on account type (taxable, IRA, 401k) and tax bracket.
Why start investing early?
Due to compound interest, starting 10 years earlier can result in significantly more wealth even with the same total contributions.