Compound Interest Calculator
Calculate the power of compound interest and see how your investments grow exponentially over time. Compare different compounding frequencies and contribution strategies.
Compound Interest Results
Growth Breakdown
Comparison Insights
Simple Interest: $0
Compounding Advantage: $0
Growth Multiple: 0.00x
Tip: More frequent compounding = higher returns
Growth Visualization
This chart shows how your investment grows over time with compound interest
Understanding Compound Interest
Compound interest is the interest earned on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," compound interest is the foundation of wealth building through investing.
Compound Interest Formula
The compound interest formula is:
A = P × (1 + r/n)^(n×t)
Where: A = final amount, P = principal, r = annual rate, n = compounding frequency, t = time in years
Why Compound Interest Matters
- Exponential Growth: Interest earns interest, creating a snowball effect
- Time is Money: Starting early maximizes the power of compounding
- Regular Contributions: Consistent additions accelerate growth
- Frequency Matters: More frequent compounding increases returns
- Long-term Wealth: Foundation of retirement planning and wealth building
Compounding Frequencies
| Frequency | Compounding Periods | Common Use | Impact |
|---|---|---|---|
| Annually | 1 per year | Some CDs, bonds | Lowest returns |
| Quarterly | 4 per year | Some investments | Moderate increase |
| Monthly | 12 per year | Savings accounts, loans | Significant boost |
| Daily | 365 per year | High-yield savings | Maximum returns |
The Rule of 72
The Rule of 72 is a quick way to estimate how long it takes for an investment to double at a given interest rate. Simply divide 72 by the annual interest rate.
Years to Double = 72 ÷ Annual Rate
Example: 8% rate ? 72 ÷ 8 = 9 years to double your money
Regular Contributions
Regular contributions, also known as dollar-cost averaging, reduce the impact of market volatility and ensure consistent investing. Each contribution earns compound interest from the moment it's invested.
Real-World Applications
- Retirement Accounts: 401(k)s and IRAs grow through compounding
- Savings Accounts: High-yield savings compound daily
- Investment Portfolios: Stocks and funds compound annually
- Debt Management: Credit card interest compounds against you
- Business Growth: Reinvested profits compound for business owners
Tip: Compound interest is often called the "eighth wonder of the world" because of its incredible power to build wealth. Start investing early, contribute regularly, and let compounding work its magic over time. Even small amounts invested consistently can grow into substantial sums.