Compound Interest Calculator

Compound interest is interest earned on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (calculated only on the principal), compound interest makes your money grow exponentially over time — often called 'interest on interest.'

The formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate as a decimal, n is the number of times interest compounds per year, and t is the number of years.

Simple interest is calculated only on the original principal: I = P × r × t. Compound interest is calculated on the principal plus accumulated interest. Over long periods, compound interest produces significantly more growth.

More frequent compounding produces slightly higher returns. Monthly compounding is the most common for savings accounts and investments. The difference between daily and monthly compounding is typically minimal, but over decades it can add up.

The Rule of 72 is a quick estimation: divide 72 by the annual interest rate to find how many years it takes for an investment to double. For example, at 8% interest, your money doubles in approximately 72/8 = 9 years.

With monthly compounding, $10,000 at 7% annual interest grows to approximately $40,387 in 20 years — quadrupling your money. With $500 monthly contributions added, it grows to approximately $302,000.

The effective annual rate (also called APY — Annual Percentage Yield) is the actual annual return after accounting for compounding. A 5% nominal rate compounded monthly has an effective rate of about 5.12%. APY is always equal to or greater than the nominal rate.

Yes, and regular contributions dramatically accelerate growth. Each contribution earns compound interest from the moment it's added. Starting early with small regular contributions often produces better results than investing a large lump sum later.