Compound Interest Calculator

The compound interest formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal (initial deposit), r is the annual interest rate (as a decimal), n is the number of times interest is compounded per year, and t is the number of years. With regular contributions, the formula becomes A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)], where PMT is the periodic contribution amount.

Simple interest is calculated only on the original principal: I = P × r × t. Compound interest is calculated on both the principal AND the accumulated interest, meaning you earn interest on your interest. Over long periods, this "compounding effect" creates dramatically more wealth. For example, $10,000 at 8% for 30 years grows to just $34,000 with simple interest, but to $100,627 with annual compounding — nearly 3× as much.

The more frequently interest compounds, the more you earn. Daily compounding yields the most, followed by monthly, quarterly, and annually. However, the difference between daily and monthly compounding is very small in practice — a $10,000 investment at 8% for 10 years grows to $22,253 with daily compounding vs $22,196 with monthly compounding, a difference of just $57. The interest rate and time period matter far more than compounding frequency.

Starting early is the single most powerful factor in building wealth through compound interest. Investing $200/month from age 25 to 65 at 7% returns produces approximately $525,000. Starting at 35 instead (same $200/month) produces only about $244,000 — less than half — even though you only miss 10 years. Those early years allow your money more time to compound, and early growth creates the base upon which all future compounding occurs. This is often called the "snowball effect" of compound interest.

Expected rates vary by asset class: High-yield savings accounts: 4–5% (2024 rates); CDs: 4–5.5%; US Treasury bonds: 4–5%; Diversified bond funds: 3–5%; S&P 500 index funds (historical average): ~10% nominal, ~7% inflation-adjusted; Real estate (appreciation + rent): 7–12%. For retirement planning, financial advisors commonly use 6–7% as a conservative long-term assumption for a diversified stock/bond portfolio.

The Rule of 72 is a quick mental math shortcut for estimating how long it takes to double your money. Simply divide 72 by your annual interest rate. At 6%, your money doubles in approximately 72 ÷ 6 = 12 years. At 8%, it doubles in 9 years. At 10%, it doubles in 7.2 years. This rule works because of the mathematics of exponential growth and is accurate within about 1% for rates between 6–10%.

Yes — compound interest works exactly the same way for debt as for investments, but in reverse. Credit card debt at 20–25% APR compounds monthly, meaning unpaid balances grow exponentially. A $5,000 credit card balance at 22% APR with minimum payments can take over 10 years to pay off and cost more than $7,000 in interest. This is why paying off high-interest debt is often the best "investment" you can make — it's a guaranteed return equal to your interest rate.