Compound Interest Calculator
Calculate compound interest and investment growth over time. See how your money grows with regular contributions. Plan your retirement, savings, and investment goals.
Investment Details
Summary
How to Use This Calculator
Harness the power of compound interest to grow your wealth over time. This calculator helps you visualize how your investments can multiply through the magic of compounding returns.
📝 Step-by-Step Instructions:
- 1. Enter your initial investment - the starting amount you plan to invest (principal)
- 2. Set your monthly contribution - additional amount you'll add each month (optional, can be $0)
- 3. Input the expected annual interest rate - typical ranges: 7-10% for stocks, 3-5% for bonds, 1-2% for savings
- 4. Choose investment duration and compound frequency - view how your money grows over time with different compounding periods
🌟 Real-World Use Cases:
Retirement Savings Planning
Calculate how much your 401(k) or IRA will grow with regular contributions over 30 years.
Example: $10,000 initial + $500/month at 8% for 30 years = $745,179
College Fund Investment
Plan for your child's education by investing early and letting compound interest work its magic.
Example: $5,000 initial + $200/month at 6% for 18 years = $89,730
Emergency Fund Growth
Build a safety net in a high-yield savings account with regular deposits.
Example: $1,000 initial + $100/month at 4.5% for 5 years = $7,464
High-Yield Savings Account
Compare returns from different banks offering various interest rates and compounding frequencies.
Example: $20,000 at 5% daily compounding for 10 years = $32,974
Investment Strategy Comparison
Test different scenarios: lump sum vs. monthly contributions, annual vs. monthly compounding.
Compare: $50,000 lump sum vs. $1,000/month for 4 years at 7% - which grows more?
💡 Pro Tips:
- Start investing early - time is your greatest asset
- Higher compound frequency = slightly better returns
- Regular monthly contributions significantly boost growth
- Even small rate differences have huge long-term impact
- Consider inflation - real returns may be 2-3% lower
⚠️ Important Notes:
- Past performance doesn't guarantee future results
- Market returns fluctuate - use conservative estimates
- Calculations assume constant rate (not realistic)
- Consider taxes and fees in real investments
- Consult financial advisor for personalized advice
How It Works
Compound interest is calculated using the formula: A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]
Where: A = final amount, P = principal, r = annual rate, n = compounds per year, t = time in years, PMT = monthly 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 on the principal, compound interest grows exponentially. For example, $1,000 at 8% annual interest compounded annually becomes $1,080 after year 1, then $1,166.40 after year 2 (8% on $1,080), and so on. Albert Einstein supposedly called it the eighth wonder of the world.
How often should interest be compounded?
More frequent compounding leads to higher returns. Daily compounding (365 times/year) yields slightly more than monthly (12 times/year), which yields more than annual compounding (once/year). However, the difference is often minimal. For example, $10,000 at 5% for 10 years: annually = $16,289, monthly = $16,470, daily = $16,487. Most savings accounts compound daily, while bonds typically compound semi-annually.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long it takes money to double with compound interest. Divide 72 by your annual interest rate. At 8%, your money doubles in approximately 72÷8 = 9 years. At 6%, it takes 12 years. At 10%, it takes 7.2 years. This rule works well for interest rates between 6-10% and provides a mental shortcut for investment planning.
How much should I save monthly for retirement?
A common rule is to save 15-20% of your gross income for retirement. If you're starting at age 25 and want $1 million by 65, you'd need to save about $400/month assuming 8% average returns. Starting at 35 requires about $900/month, and at 45 requires about $2,000/month for the same goal. The key is to start early and let compound interest work for you. Use our calculator to model your specific situation.