Compound Interest Calculator
See how compound interest grows your money over time with optional monthly contributions.
The Formula
P = principal · r = annual rate · n = compounds/year · t = years
With contributions:
A = P(1 + r/n)ⁿᵗ + PMT × [(1 + r/n)ⁿᵗ − 1] / (r/n)
= 5,000 × (1 + 0.07/12)¹²⁰
= 5,000 × (1.005833)¹²⁰
= $10,032
What Is Compound Interest?
Compound interest is interest calculated on both your original principal and the interest you've already earned. In plain English: your money earns interest, and then that interest earns interest too. It starts slowly but accelerates dramatically over time. A $10,000 investment at 8% annual return grows to about $21,589 in 10 years — but wait 30 years and it becomes $100,627. That 8% rate didn't change, but time made an enormous difference. This is why starting to invest early, even with small amounts, has such a massive long-term impact.
The Rule of 72
Want a quick way to estimate how long it takes for money to double? Divide 72 by the annual interest rate. At 6%, money doubles in about 12 years (72 / 6 = 12). At 9%, it doubles in 8 years. At 3% (like a savings account), it takes 24 years. This mental math shortcut, known as the Rule of 72, helps you quickly compare investment options and understand the true impact of interest rates without needing a calculator.
Compounding Frequency: Does It Matter?
Interest can compound annually, quarterly, monthly, or even daily. The more frequently it compounds, the faster your money grows — though the difference is smaller than most people expect. $10,000 at 8% annual interest compounding annually grows to $21,589 in 10 years. Compounding daily, it grows to $22,253 — about $664 more. The compounding frequency matters most at higher interest rates and over longer time periods. For practical purposes, monthly compounding (which is what most savings accounts and investments use) is almost as good as daily.
Why Consistent Contributions Change Everything
The real power of compounding isn't just time — it's combining time with regular contributions. Adding just $200 a month to that same $10,000 starting balance at 8% for 30 years results in a balance of over $370,000. Without contributions, it would grow to only $100,000. The monthly contributions are doing $170,000 of work. This is why maxing out a 401(k) or IRA, even incrementally, has such a profound long-term impact.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal — if you earn 5% on $1,000, you always earn $50/year. Compound interest is calculated on the principal plus all previously earned interest. In year 2, you're earning 5% on $1,050, not $1,000. The gap grows every year. Over 30 years, a $10,000 investment at 7% simple interest becomes $31,000. With compound interest, it becomes $76,123.
How often does interest compound?
It depends on the account or investment. Most high-yield savings accounts and money market accounts compound daily. CDs often compound monthly or quarterly. Bond interest typically compounds semi-annually. Stock market returns compound annually in calculators, though in reality gains and dividends are reinvested continuously. More frequent compounding means slightly faster growth, but the difference is usually modest.
What is a realistic investment return to use in the calculator?
The S&P 500 has historically averaged about 10% annually (roughly 7% after inflation) over long periods. For conservative savings in high-yield accounts, 4–5% is realistic as of recent years. For a balanced portfolio of stocks and bonds, 6–7% is a commonly used long-term assumption. Remember that actual returns vary year to year — these are long-term averages, not guarantees.
Does compound interest work on debt too?
Yes, and this is the dark side of compounding. Credit card debt at 22% APR compounds daily. If you carry a $5,000 balance and make only minimum payments, you could end up paying $5,000 or more just in interest before the debt is paid off. The same math that builds wealth in your favor also works against you when you carry high-interest debt — which is why paying off high-rate debt is almost always the best guaranteed return on your money.
What is APY vs APR?
APR (Annual Percentage Rate) is the stated interest rate without compounding. APY (Annual Percentage Yield) includes the effect of compounding and represents your actual yearly return. For savings accounts and investments, APY is more useful because it tells you what you'll actually earn. For loans, APR is the relevant figure. A savings account with 5% APR compounding daily has an APY of about 5.13%.
How much would I have if I invested $100 per month for 30 years?
At an 8% annual return, $100/month for 30 years grows to approximately $150,000 — even though you only contributed $36,000 in total. The remaining $114,000 is compound interest. At 10%, the same $100/month becomes about $228,000. This is why time in the market matters far more than timing the market.