Compound Interest Calculator
See how your money grows over time with the power of compound interest. Calculate investment growth with initial principal and regular monthly contributions.
Initial Investment
Monthly Contributions
Amount you'll add each month
Growth Parameters
Future Value
$308,165
after 20 years
Growth Over Time
Year-by-Year Breakdown
| Year | Start Balance | Contributions | Interest | End Balance |
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Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world" because of its powerful effect on wealth building. Unlike simple interest, which is calculated only on the principal, compound interest is calculated on both the principal and the accumulated interest from previous periods.
The Compound Interest Formula
The formula for compound interest is: A = P(1 + r/n)^(nt)
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Number of times interest is compounded per year
- t = Number of years
The Power of Time
The longer you invest, the more powerful compound interest becomes. Starting early, even with smaller amounts, can lead to significantly larger returns than starting later with larger amounts. This is why financial advisors emphasize the importance of starting to invest as early as possible.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the principal (original amount) and accumulated interest from previous periods. Unlike simple interest, it creates exponential growth as you earn interest on your interest.
How is compound interest calculated?
The 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, n is the compounding frequency per year, and t is the number of years.
How often should investments compound?
More frequent compounding (daily, monthly, quarterly) generates slightly higher returns than annual compounding. However, the difference is usually minimal for typical investment returns.
What's a good rate of return for compound interest?
Historical stock market returns average 7-10% annually. Conservative investments like bonds return 3-5%. High-yield savings accounts typically offer 1-3%. Your expected return depends on your risk tolerance and investment strategy.
How does compound interest benefit long-term investing?
The longer your money compounds, the more powerful the effect. Starting early, even with small amounts, typically outperforms starting later with larger amounts due to the exponential growth over time.
Important Disclaimer
This calculator provides estimates for educational and informational purposes only. Results should not be considered as financial or investment advice. Actual investment returns will vary based on market conditions, fees, taxes, and other factors.
Past performance does not guarantee future results. Always consult with a qualified financial advisor before making investment decisions.