Compound Interest Calculator
See how your money grows with the power of compound interest. Enter your initial investment, regular contributions, interest rate, and time horizon to calculate your future balance. Compound interest is often called the eighth wonder of the world — let this calculator show you why.
How We Calculate This
This calculator uses the compound interest formula with regular contributions: FV = P(1 + r/n)^(nt) + PMT × (((1 + r/n)^(nt) - 1) / (r/n)), where P is principal, r is annual rate, n is compounding frequency, t is time in years, and PMT is the periodic contribution.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only calculates interest on the principal, compound interest allows your money to grow exponentially over time.
How does compounding frequency affect my returns?
More frequent compounding results in slightly higher returns. Monthly compounding earns more than annual compounding because interest is calculated and added to your principal more often, allowing you to earn interest on your interest sooner.
What is a realistic interest rate to use?
The historical average annual return of the S&P 500 is about 10% before inflation (7% after inflation). For a more conservative estimate, use 6-7%. High-yield savings accounts typically offer 4-5%, while bonds average 3-5%.
What is the Rule of 72?
The Rule of 72 is a simple way to estimate how long it takes to double your money. Divide 72 by your annual interest rate. For example, at 8% interest, your money doubles in approximately 9 years (72 ÷ 8 = 9).
How do regular contributions affect compound growth?
Regular contributions significantly accelerate wealth building. Even small monthly additions compound over time, often contributing more to your final balance than your initial investment, especially over long time horizons.
Should I contribute monthly or annually?
Contributing monthly is generally better because your money starts working for you sooner. Monthly contributions benefit from more compounding periods throughout the year compared to a single annual contribution.
How does inflation affect my real returns?
Inflation reduces the purchasing power of your future money. If you earn 7% and inflation is 3%, your real return is about 4%. Consider using inflation-adjusted rates when planning for long-term goals.
What is the effective annual rate (EAR)?
The effective annual rate accounts for compounding within the year. A 12% annual rate compounded monthly has an EAR of 12.68%, meaning you actually earn 12.68% per year due to monthly compounding.
Related Calculators
You might also find these calculators helpful: Retirement Calculator, Savings Rate Calculator, and Inflation Calculator.
This calculator provides estimates for educational purposes only. Actual investment returns vary and past performance does not guarantee future results. Consult a financial advisor for personalized advice.