Compound Interest Calculator
See exactly how your money grows with compound interest. Enter your starting amount, interest rate, compounding frequency, and time period to calculate your final balance.
What Is Compound Interest?
Compound interest is often called the eighth wonder of the world — and for good reason. Unlike simple interest, which is calculated only on your original principal, compound interest is calculated on your principal plus all previously earned interest. This means your money grows exponentially rather than linearly.
Albert Einstein allegedly called compound interest the most powerful force in the universe. Whether the quote is apocryphal or not, the math is unambiguous: given enough time, even modest returns compound into extraordinary sums.
The Compound Interest Formula
- A = final amount
- P = principal (initial investment)
- r = annual interest rate (as a decimal, e.g., 0.05 for 5%)
- n = number of times interest compounds per year
- t = time in years
Example: $5,000 invested at 7% interest, compounded monthly for 20 years: A = 5,000 × (1 + 0.07/12)^(12×20) = $19,898
Simple vs. Compound Interest
| Scenario | Simple Interest | Compound (Monthly) |
|---|---|---|
| $10,000 at 7% / 10 yrs | $17,000 | $20,097 |
| $10,000 at 7% / 20 yrs | $24,000 | $40,388 |
| $10,000 at 7% / 30 yrs | $31,000 | $81,165 |
Frequently Asked Questions
- What is the difference between simple and compound interest?
- Simple interest is calculated only on the original principal. Compound interest is calculated on the principal plus any interest already earned. Over time, this difference is enormous. $10,000 at 7% simple interest for 30 years grows to $31,000. At 7% compound interest (monthly), it grows to over $81,000.
- What is the Rule of 72?
- The Rule of 72 is a quick mental math shortcut to estimate how long it takes an investment to double. Divide 72 by the annual interest rate. At 6%, your money doubles in approximately 72 ÷ 6 = 12 years. At 9%, it doubles in about 8 years. It's a useful approximation for compound interest.
- How does compounding frequency affect my returns?
- More frequent compounding means interest is calculated and added to your principal more often, so you earn interest on interest sooner. Daily compounding yields slightly more than monthly, which yields more than annual. For $10,000 at 5% over 10 years: annual compounding gives $16,289, while daily compounding gives $16,487 — a $198 difference.
- What is APY and how is it different from APR?
- APR (Annual Percentage Rate) is the stated interest rate without accounting for compounding. APY (Annual Percentage Yield) reflects the actual return after compounding is applied. A savings account with a 5% APR compounding monthly has an APY of approximately 5.12%. APY is always equal to or higher than APR.
- Is compound interest good or bad?
- Compound interest works for you when you're saving or investing, but against you when you're in debt. Credit card balances, student loans, and other debts compound too — often at high rates. This is why paying off high-interest debt is typically the highest-return 'investment' you can make.