Calculate how your investments will grow over time with the power of compound interest
The Compound Interest Calculator helps you understand how your investments or savings can grow over time through the power of compound interest. Unlike simple interest, which is calculated only on the initial principal, compound interest is calculated on the principal amount and the accumulated interest, leading to exponential growth over time.
Compound interest is calculated using the following formula:
Where:
The longer your money is invested, the more powerful the compound effect becomes. This is why starting to invest early is one of the most important financial decisions you can make.
The more frequently interest is compounded (daily vs. monthly vs. annually), the more your money will grow over time, though the difference between monthly and daily compounding is often minimal.
Adding regular contributions to your investment dramatically increases its growth potential, even more than a higher interest rate in many cases.
Consider an initial investment of $1,000 with a 7% annual interest rate compounded monthly over 10 years:
| Year | Starting Balance | Interest Earned | Ending Balance |
|---|---|---|---|
| 1 | $1,000.00 | $72.29 | $1,072.29 |
| 5 | $1,407.10 | $101.65 | $1,508.75 |
| 10 | $1,967.15 | $142.07 | $2,109.22 |
Now, consider the same example but with a $100 monthly contribution:
| Year | Starting Balance | Annual Contribution | Interest Earned | Ending Balance |
|---|---|---|---|---|
| 1 | $1,000.00 | $1,200.00 | $137.20 | $2,337.20 |
| 5 | $8,235.05 | $1,200.00 | $641.09 | $10,076.14 |
| 10 | $18,417.92 | $1,200.00 | $1,430.74 | $21,048.66 |
Compound interest is the foundation of retirement planning, helping your savings grow exponentially over decades.
Starting early with college savings plans allows compound interest to significantly reduce the financial burden of education costs.
Compound interest works against you with loans, making it important to understand how it affects your debt over time.
Understanding compound interest helps investors make informed decisions about risk, time horizons, and contribution amounts.
This calculator provides estimates based on a constant interest rate and regular contributions. Actual investment performance will vary due to market fluctuations, changing interest rates, and other factors. This calculator should be used for educational purposes only and does not constitute financial advice.