Free Compound Interest Calculator

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What is Compound Interest?

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It is the result of reinvesting interest, calculating interest on interest, rather than paying it out as it is accrued. Albert Einstein reportedly called it "the eighth wonder of the world."

How Compound Interest Works

Imagine you invest $100 at 10% annual interest. After one year, you have $110 ($100 principal + $10 interest). In the second year, you earn interest on $110, not just the original $100, giving you $121 ($110 × 1.10). This cycle continues, accelerating your wealth growth over time in an exponential curve.

The key difference between simple and compound interest is that simple interest is calculated only on the original principal, while compound interest includes accumulated interest. Over long periods, this difference becomes dramatic.

The Compound Interest Formula

The mathematical formula for compound interest is:

A = P(1 + r/n)nt
  • A = Final amount (principal + interest)
  • P = Principal (initial investment)
  • r = Annual interest rate (as a decimal)
  • n = Number of compounding periods per year
  • t = Time in years

Three Calculation Modes

Our calculator allows you to simulate three main scenarios:

  • With Deposits: Start with an initial amount and add regular monthly contributions. This is the most common scenario for long-term investing and retirement planning.
  • No Deposits: See how a lump sum grows on its own without additional contributions. Perfect for understanding how a one-time investment compounds over time.
  • Time to Target: Calculate how long it will take to reach a specific financial goal given your starting amount, contributions, and expected return rate.

The Power of Time and Consistency

Time is the most important factor in compound interest. Starting early allows your money to grow exponentially. Even small amounts invested regularly can grow into significant wealth over decades. A 25-year-old investing $200/month at 7% annual return will have significantly more at retirement than a 35-year-old investing $400/month.

This is why financial advisors consistently recommend starting to invest as early as possible, even with small amounts. The compounding effect rewards patience and consistency.

Compounding Frequency Matters

Interest can compound annually, semi-annually, quarterly, monthly, or even daily. More frequent compounding results in faster growth. For example, $10,000 at 5% compounded annually becomes $10,500 after one year, but the same amount compounded monthly becomes $10,512. While the difference seems small, it adds up significantly over decades.

Ready to plan your retirement? Try our FIRE Calculator to estimate when you can achieve financial independence. For understanding loan costs, use our Loan Simulator or Mortgage Calculator.

The Rule of 72

Need a quick mental math trick? The Rule of 72 estimates how long it will take to double your investment at a fixed annual rate of interest. Simply divide 72 by your annual interest rate.

  • At 6% return: 72 / 6 = 12 years to double.
  • At 8% return: 72 / 8 = 9 years to double.
  • At 10% return: 72 / 10 = 7.2 years to double.

Note: This is an approximation and is slightly less accurate at very high or very low interest rates.

Frequently Asked Questions

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