Compound Interest Calculator
See how your investments grow with the power of compound interest. This calculator accounts for initial investment, regular monthly contributions, interest rate, compounding frequency, and time horizon.
Formula reviewed for accuracy. Our methodology & sources
Compound Interest Calculator
finance calculator
How It Works
Compound interest means you earn returns not just on the money you put in, but also on the returns those contributions have already generated. Each period your balance grows, and the next period's interest is calculated on that larger balance, so growth accelerates over time — the effect often called the "snowball." The calculator applies your annual rate divided by the compounding frequency to the running balance each period, and layers your regular contributions on top so their earnings compound too. Two forces drive the final number: how much you invest, and how long you let it compound. Time is the more powerful of the two. A worked example shows why. Start with $10,000, add $500 every month, and assume a 7% annual return compounded monthly for 20 years. Your own money invested totals $10,000 + ($500 × 12 × 20) = $130,000. Yet the account grows to roughly $299,000 — meaning about $169,000 came from compound growth alone, more than the $130,000 you actually contributed. Push the horizon to 30 years and the gap widens dramatically, because the earliest dollars have had three decades to multiply. This is the core lesson of long-term investing: starting early beats contributing more later. Use this calculator to project retirement savings, compare investment scenarios, or see how a higher rate or an extra few years changes the outcome. Keep two caveats in mind. First, the return here is assumed constant, but real markets are volatile — a 7% average can hide years of losses, so treat the result as a smooth long-run estimate, not a guarantee. Second, this figure is nominal: it ignores inflation and taxes. At 3% inflation, $299,000 in 20 years has the purchasing power of roughly $166,000 today, and taxes on gains in a taxable account reduce it further. For real spending power, subtract inflation from your assumed rate before projecting.
Formula
A = P(1 + r/n)^(nt) + PMT × [(1 + r/n)^(nt) − 1] / (r/n) Where: P = Principal, r = Annual Rate, n = Compounding Periods, t = Years, PMT = Monthly Payment
Examples
$10K investment, $500/month, 7% for 20 years
Typical retirement savings scenario.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both your original principal and the interest already accumulated, so you earn "interest on interest." Unlike simple interest, which is figured only on the principal, compound interest makes a balance grow exponentially rather than in a straight line. The longer the money compounds, the more pronounced the effect becomes.
How often should interest compound?
More frequent compounding — daily rather than annually — produces slightly higher returns because interest is added to the balance sooner and starts earning on itself. In practice the difference between monthly and daily compounding over a long horizon is very small, often a fraction of a percent. The interest rate and the length of time invested matter far more than the compounding frequency.
What is the Rule of 72?
The Rule of 72 is a mental shortcut for estimating how long an investment takes to double: divide 72 by the annual return. At 8% a year, money doubles in roughly 9 years (72 ÷ 8), and at 6% in about 12 years. It is an approximation, but accurate enough for quick planning at typical rates.
What is a realistic long-term investment return?
Over the long run the US stock market has historically returned about 7–10% per year before inflation, or roughly 5–7% after inflation. Many financial planners use a conservative 6–8% for projections. Remember these are long-term averages that smooth over years of gains and losses; any single year can be far higher or lower.
Do my monthly contributions really matter that much?
Yes — regular contributions are often the biggest driver of the final balance, especially early on when they have the most time to compound. In a typical 20-year projection, contributions made in the first few years can grow more than those made near the end. Consistency and starting early usually beat trying to time the market or invest a lump sum later.
Does this calculator account for inflation and taxes?
No. The future value shown is a nominal figure that ignores both inflation and taxes on your gains. To estimate real purchasing power, subtract your expected inflation rate (around 3%) from the return before projecting, and account for capital-gains or income tax if the money is in a taxable account. Tax-advantaged accounts like a 401(k) or IRA change the after-tax picture significantly.
What is the difference between compound interest and simple interest?
Simple interest is calculated only on the original principal, so it grows in a straight line — $1,000 at 5% simple interest earns $50 every year forever. Compound interest is calculated on the principal plus all previously earned interest, so the growth curves upward and accelerates. Over long periods the difference between the two becomes enormous.
Sources
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