Compound Interest Calculator

Compound interest is the interest you earn on both your original principal and on the interest that has already accumulated. Unlike simple interest — which is calculated only on the principal — compound interest causes your balance to grow at an accelerating rate over time, which is why it's often called the 'eighth wonder of the world.'

The standard compound interest formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate (as a decimal), n is the number of compounding periods per year, and t is the number of years. When you add regular contributions, each payment also compounds over its remaining time period and is summed together.

The more frequently interest compounds, the more you earn. Daily compounding yields slightly more than monthly, which yields more than annual compounding. The difference becomes more pronounced over longer time horizons and higher interest rates. For most savings accounts, monthly or daily compounding is standard.

Yes — regular contributions can have a dramatic effect on your final balance, often more than the initial investment itself over long periods. Even a modest monthly contribution of $100–$200 can add tens of thousands of dollars to your final balance over 20–30 years thanks to compounding.

For a high-yield savings account or CD, rates typically range from 4%–5% in the current environment. For a diversified stock market index fund, the historical average annual return is approximately 7%–10% before inflation. Use a conservative estimate to avoid overestimating your future wealth.

The Rule of 72 is a quick mental shortcut to estimate how long it takes for an investment to double. Simply divide 72 by your annual interest rate. For example, at 6% annual interest, your money doubles in approximately 12 years (72 ÷ 6 = 12). It's a useful way to grasp the power of compounding without doing complex math.

Simple interest is calculated only on the original principal each period, so a $10,000 deposit at 5% always earns $500/year. Compound interest is calculated on the growing balance — so after the first year you earn interest on $10,500, then $11,025, and so on. Over time, the gap between simple and compound interest grows significantly.

Absolutely. The same compounding effect that grows your savings also applies to debt. Credit card balances, personal loans, and mortgages all use compounding — meaning unpaid interest gets added to your principal and you then owe interest on that too. Paying down high-interest debt quickly is just as important as investing for compound growth.