Compound Interest Calculator
See how your investments grow over time with the power of compound interest.
Investment Details
Your Results
Future Value
$298,073
Total Contributions
$82,000
Total Interest Earned
$216,073
Growth Over Time
FAQs
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It's "interest on interest" that makes your money grow exponentially.
How often should interest compound?
The more frequently interest compounds, the better. Monthly or daily compounding yields slightly more than annual compounding, though the difference is usually marginal.
What's a realistic interest rate?
Savings accounts: 4-5%, Bonds: 4-6%, Stock market (long-term average): 8-10%, High-risk investments: 10%+. Choose based on your risk tolerance and investment type.
What Is Compound Interest?
Compound interest is interest calculated on both your initial principal and the accumulated interest from previous periods. While simple interest only grows your original deposit, compound interest creates an accelerating snowball effect that dramatically rewards patience and consistency.
The formula: A = P(1 + r/n)^(nt) where A = final amount, P = principal, r = annual rate, n = compounding frequency per year, t = years.
The Rule of 72
Divide 72 by your annual interest rate to estimate doubling time:
- At 4% → doubles in 18 years
- At 6% → doubles in 12 years
- At 8% → doubles in 9 years
- At 10% → doubles in 7.2 years
Real Scenario: $300/Month for 30 Years
Starting with $5,000 at age 25, adding $300/month at 8% annual return:
- Age 35: ~$64,000 (invested $41,000)
- Age 45: ~$177,000 (invested $77,000)
- Age 55: ~$428,000 (invested $113,000)
- Age 65: ~$994,000 (invested $149,000)
You invested $149,000 total and accumulated nearly $1 million. Compound interest earned: $845,000—5.7x your contributions.
Compounding Frequency Matters
| Frequency | Final Value ($10K, 8%, 30yr) |
|---|---|
| Annual | $100,627 |
| Monthly | $109,357 |
| Daily | $110,517 |
Frequently Asked Questions
Does compound interest work on stock investments?
Yes—through reinvested dividends and price appreciation. When dividends are reinvested automatically, you buy more shares that themselves pay dividends. This creates compound growth. Index funds in retirement accounts are the most powerful compounding vehicle for most investors.
What interest rate should I use for long-term planning?
Conservative: 6-7%. S&P 500 historical average: 8-10%. High-yield savings (current): 4-5%. For inflation-adjusted real returns, subtract 2-3% from nominal rate.
How does compound interest work against you on debt?
A $5,000 credit card balance at 22% APR with only minimum payments takes 15+ years to pay off and costs over $8,000 in interest—2.6x the original balance. High-interest debt should be eliminated before investing.
Should I invest a lump sum or spread it out?
Research shows lump sum investing beats dollar-cost averaging about 2/3 of the time because markets trend upward. However, for most people building wealth through monthly income, consistent monthly contributions (dollar-cost averaging) is the practical and effective approach.
What's the best account for compound growth?
For long-term: Roth IRA or 401(k) invested in index funds—compound growth with no taxes on gains. For short-term: high-yield savings account (currently 4.5-5.2% APY). Never leave large amounts in standard checking/savings earning 0.01%.