Compound Interest Calculator
Calculate how your investment grows with compound interest over time.
✓ See the power of compound interest. Watch your money grow exponentially as interest earns interest over time.
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The Magic of Compound Interest
Albert Einstein allegedly called compound interest "the eighth wonder of the world." It's the process where your investment earnings generate their own earnings. Start with $10,000 at 7% annual return: you earn $700 in year one. In year two, you earn 7% on $10,700—not just your initial $10,000. This accelerating growth is compound interest.
Compounding Frequency Matters
Daily: Interest is calculated and added daily (365 times per year). Best for savings accounts.
Monthly: Interest compounds 12 times per year. Common for CDs and some accounts.
Quarterly: 4 times per year. Typical for bonds.
Annually: Once per year. Common for investment returns.
More frequent compounding means higher returns. The difference between daily and annual compounding at 7% over 20 years is thousands of dollars on a $10,000 investment.
Time is Your Greatest Asset
Starting early is crucial. A $5,000 investment at age 25 earning 7% annually becomes $96,000 by age 65 (40 years). The same $5,000 invested at age 35 becomes only $36,000 by age 65 (30 years). That 10 years of difference more than doubles your outcome.
Boost Your Compound Returns
- Start Early: Time amplifies compound interest exponentially.
- Invest Regularly: Add money consistently to benefit from compounding on larger amounts.
- Reinvest Earnings: Don't withdraw interest. Let it compound.
- Seek Higher Returns: A 1-2% difference in annual return compounds to huge differences over decades.
- Keep Costs Low: High fees on investments reduce your compounding base.
Frequently Asked Questions
Get answers to common questions about this calculator
Q: What's the Rule of 72?▼
A: The Rule of 72 is a quick way to estimate doubling time. Divide 72 by your annual interest rate. At 7% returns, your money doubles every ~10 years (72/7). At 10%, every ~7 years (72/10). This rule is accurate for rates between 5-8%.
Q: How does regular investing amplify compound interest?▼
A: Adding money regularly (dollar-cost averaging) increases your compounding base. $100/month invested for 30 years at 7% becomes ~$130,000, even though you only contributed $36,000. The extra $94,000 is pure compounding power.
Q: What rate of return should I expect?▼
A: S&P 500 historical average is ~10% annually, but this varies wildly year-to-year. Long-term: expect 7-10% for stock-heavy portfolios, 3-5% for balanced portfolios, 2-3% for bond-focused portfolios. Past performance doesn't guarantee future results.
Q: How does inflation affect compound interest?▼
A: Inflation erodes purchasing power. A 7% return in a 2% inflation environment is really a 5% real return. Always consider inflation when planning investments. Treasury inflation-protected securities (TIPS) provide inflation-adjusted returns.