Compound Interest Calculator – Investment Growth Calculator
Calculate compound interest growth on your investments
How to Use
- Enter your initial investment amount (principal)
- Input the annual interest rate (as a percentage)
- Enter the investment time period in years
- Select how often interest compounds (annually, monthly, daily, etc.)
- Optionally add regular contribution amounts and frequency
- Calculate to see your investment grow over time
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," it causes wealth to grow at an accelerating rate compared to simple interest, which is calculated only on the principal.
Albert Einstein allegedly called compound interest "the eighth wonder of the world," saying "he who understands it, earns it; he who doesn't, pays it." The power of compound interest is most evident over long time periods.
The Compound Interest Formula
The standard compound interest formula is: A = P(1 + r/n)^(nt), where:
- A = Final amount
- P = Principal (initial investment)
- r = Annual interest rate (as a decimal)
- n = Number of times interest compounds per year
- t = Time in years
For investments with regular contributions, the formula becomes more complex as each contribution compounds for a different amount of time.
Impact of Compounding Frequency
The more frequently interest compounds, the more you earn. Here's how different frequencies compare for a $10,000 investment at 5% annual interest over 10 years:
| Frequency | Final Amount | Interest Earned |
|---|---|---|
| Annually | $16,289 | $6,289 |
| Quarterly | $16,436 | $6,436 |
| Monthly | $16,470 | $6,470 |
| Daily | $16,487 | $6,487 |
While daily compounding earns more than annual, the difference is relatively small. The most important factors are the interest rate and time period.
Maximizing Compound Interest
- Start investing as early as possible—time is the most powerful factor
- Make regular contributions to accelerate growth
- Choose investments with higher interest rates (while managing risk)
- Reinvest dividends and interest instead of withdrawing them
- Minimize fees and taxes that reduce your effective return
- Be patient and avoid early withdrawals that reset compounding
- Consider tax-advantaged accounts like IRAs and 401(k)s
- Don't try to time the market—consistent investing works best
Frequently Asked Questions
- What's the difference between compound interest and simple interest?
- Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus all accumulated interest. Over time, compound interest grows much faster. For example, $1,000 at 5% simple interest for 10 years becomes $1,500, but with compound interest (annual compounding), it becomes $1,629.
- How often does compound interest compound?
- It depends on the investment or account. Common frequencies include annually, semiannually, quarterly, monthly, and daily. Savings accounts often compound daily or monthly, while bonds might compound semiannually. Check your specific investment's terms.
- Is compound interest better for short-term or long-term investing?
- Compound interest is most powerful for long-term investing. The effect becomes dramatic over decades. For example, $10,000 at 7% annual interest grows to $19,672 in 10 years, but to $76,123 in 30 years—nearly 4x the original amount, even though it's only 3x the time period.
- Can I lose money with compound interest?
- If your investment earns a positive interest rate, you can't lose money through compounding itself. However, if you're paying compound interest on debt (like credit cards), it works against you. Also, investment values can fluctuate due to market risk, independent of compound interest calculations.