💵 Compound Interest Calculator

See how your money grows over time with the power of compound interest

⚙️ Investment Details
The amount you're starting with
How much you'll add each month
Expected annual return (S&P 500 avg: ~10%)
💡 The Power of Compound Interest
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Start Early

Time is your biggest advantage. Starting 10 years earlier can double your final amount.

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Stay Consistent

Regular contributions matter more than timing the market perfectly.

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Reinvest Returns

Let your earnings generate more earnings. That's the compound effect.

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Stay the Course

Market ups and downs are normal. Long-term investors win.

📊 Your Results
Future Value
$0
After 20 years
Total Contributions
$0
Total Interest Earned
$0
Interest %
0%
Principal
Interest
📅 Year-by-Year Breakdown
Year Contributions Interest Balance
📚 What is Compound Interest?

Compound interest is often called "the eighth wonder of the world" and for good reason—it's one of the most powerful forces in building wealth. Unlike simple interest, which only calculates returns on your original principal, compound interest earns returns on both your initial investment AND the interest you've already accumulated.

Here's how it works: when you invest $10,000 at 7% annual interest, you earn $700 in the first year. With simple interest, you'd earn $700 every year. But with compound interest, your second year earns interest on $10,700—giving you $749. By year three, you're earning on $11,449. This snowball effect accelerates dramatically over time.

The compound interest formula is: A = P(1 + r/n)^(nt)

  • 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

The key takeaway? Time is your greatest ally. An investment of $10,000 at 7% annual interest grows to $19,671 in 10 years, $38,696 in 20 years, and $76,122 in 30 years—without adding a single additional dollar. When you combine time with regular contributions, the results become truly remarkable.

🎯 How to Use This Calculator

Our compound interest calculator helps you visualize how your savings will grow over time. Here's a step-by-step guide:

  1. Enter your initial investment – This is the lump sum you're starting with. Even if you're starting from zero, that's okay—the calculator works with monthly contributions alone.
  2. Set your monthly contribution – How much can you consistently invest each month? Even small amounts like $100-$500 can grow significantly over decades.
  3. Choose an interest rate – The historical average return of the S&P 500 is approximately 10% per year (about 7% after inflation). Use 7% for conservative estimates or 10% for historical averages.
  4. Select your time horizon – How many years until you'll need this money? Longer timeframes dramatically increase your final balance.
  5. Pick a compound frequency – Most investments compound daily or monthly. More frequent compounding slightly increases your returns.

The results update instantly as you adjust any value. Use the year-by-year breakdown table to see exactly how your wealth builds over time, and notice how the interest earned becomes larger than your contributions in later years.

💡 Real-World Examples

Example 1: Starting Early (Age 25)

Sarah invests $500/month starting at age 25 with a 7% return. By age 65, she'll have approximately $1,199,101. Her total contributions: $240,000. Interest earned: $959,101.

Example 2: Starting Later (Age 35)

Mike invests the same $500/month starting at age 35. By age 65, he'll have approximately $566,765. His total contributions: $180,000. Interest earned: $386,765.

The 10-Year Difference

Sarah contributed only $60,000 more than Mike, but ends up with over $600,000 more—purely from the extra decade of compound growth. This illustrates why starting early matters more than the amount you invest.

❓ Frequently Asked Questions

What's the difference between compound and simple interest?

Simple interest is calculated only on your original principal. Compound interest is calculated on your principal PLUS all previously earned interest. Over time, this difference becomes enormous. A $10,000 investment at 7% for 30 years yields $31,000 with simple interest but $76,122 with compound interest.

How often should interest compound?

More frequent compounding means slightly higher returns. Daily compounding yields a bit more than monthly, which yields more than annually. However, the difference is relatively small—the bigger factors are your contribution amount, interest rate, and time horizon.

What interest rate should I use?

For stock market investments, the historical S&P 500 average is about 10% nominal or 7% after inflation. For savings accounts, use 4-5% (current high-yield rates). For bonds, use 4-6%. Be conservative in your estimates—it's better to be pleasantly surprised than disappointed.

Does compound interest work on debt too?

Yes, and this is why high-interest debt is so dangerous. Credit card debt at 20% APR compounds against you, making balances grow rapidly if unpaid. This is why paying off high-interest debt should typically be prioritized before investing.

What's the Rule of 72?

The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your interest rate. At 7% returns, your money doubles approximately every 10.3 years (72 ÷ 7 = 10.3). At 10%, it doubles every 7.2 years.

Should I invest a lump sum or dollar-cost average?

Historically, lump-sum investing beats dollar-cost averaging about 2/3 of the time because markets generally go up. However, dollar-cost averaging (investing fixed amounts regularly) reduces risk and is more practical for most people who invest from each paycheck.

How does inflation affect compound interest?

Inflation erodes purchasing power over time. A 10% nominal return with 3% inflation gives you roughly 7% "real" return. This is why financial planners often recommend using 7% in calculations—it represents inflation-adjusted stock market returns.

🔗 Related Financial Concepts
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Dollar-Cost Averaging

Investing fixed amounts at regular intervals, regardless of market conditions. This strategy reduces the impact of volatility and removes emotional decision-making.

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Time Value of Money

The concept that money available today is worth more than the same amount in the future because of its potential earning capacity through compound interest.

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Asset Allocation

Dividing investments among different asset classes (stocks, bonds, cash) to balance risk and reward according to your goals and timeline.

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Dividend Reinvestment

Automatically using dividend payments to purchase more shares, accelerating compound growth without additional out-of-pocket contributions.