Compound Interest Calculator

Compound interest means you earn interest not just on your initial principal, but also on all previously accumulated interest. This creates exponential rather than linear growth — the "snowball effect". The longer the time horizon, the more dramatic the effect. For example, $10,000 at 8% for 10 years with annual compounding grows to $21,589 — more than double — and to $46,610 after 20 years.

A = P(1 + r/n)^(nt), where: A = final amount, P = principal (initial investment), r = annual interest rate (as decimal, e.g. 0.08 for 8%), n = number of times interest compounds per year (1=annual, 12=monthly, 365=daily), t = number of years. For monthly contributions, the future value of annuity formula is added: FV = PMT × [(1 + r/n)^(nt) − 1] / (r/n).

The more frequently interest compounds, the more you earn. Example: $10,000 at 8% for 20 years: Annual compounding → $46,610. Monthly compounding → $49,268. Daily compounding → $49,530. The difference between monthly and daily is small (~0.5%), but annual vs monthly adds ~6% over 20 years. For most savings accounts and investments, monthly compounding is standard.

The Rule of 72 is a mental shortcut: divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 6%: 72 ÷ 6 = 12 years. At 9%: 72 ÷ 9 = 8 years. At 3% (savings account): 72 ÷ 3 = 24 years. It's an approximation — the calculator gives exact figures.

For long-term stock market investments: 7–10% is historically reasonable (before inflation). S&P 500 historical average: ~10%/year nominal, ~7%/year real (inflation-adjusted). For bonds: 3–5%. For savings deposits: 2–5%. For index funds: ~7–8% real long-term. Always use the net-of-fees, after-inflation rate for realistic projections. A 2% difference in annual return makes an enormous difference over 30 years.

Simple interest is calculated only on the original principal: I = P × r × t. If you invest $10,000 at 8% for 10 years with simple interest, you earn $8,000 total = $18,000. Compound interest (reinvesting earnings) gives $21,589 at the same rate — $3,589 more. The gap widens dramatically over time: over 30 years, $10,000 at 8% simple = $34,000; compound = $100,627. Compound interest is why long-term investing works.

Regular contributions dramatically amplify compound growth through a technique sometimes called "dollar-cost averaging". Example: $10,000 initial + $200/month at 7% for 30 years: without contributions = $76,123; with $200/month = $327,946 ($72,000 contributed, $245,946 from growth). The earlier and more regularly you contribute, the more powerful the effect.

The effective annual rate (EAR) accounts for compounding frequency. If your nominal rate is 8% compounded monthly, the EAR = (1 + 0.08/12)^12 − 1 = 8.30%. EAR is what you actually earn when interest compounds within the year. Banks and investment products often advertise nominal rates — check whether interest compounds monthly, quarterly, or annually to calculate your true return.

Inflation erodes purchasing power. At 2% inflation, $100 today is worth ~$55 in 30 years. To calculate real (inflation-adjusted) returns, subtract inflation from your nominal rate: real rate ≈ nominal rate − inflation rate. If your investment earns 8% nominally and inflation is 2.5%, your real return is ~5.5%. Using the real rate in this calculator shows you future value in today's purchasing power.

This compound interest calculator is designed for general investment planning with flexible compounding frequencies (annual, monthly, daily), optional monthly contributions, and a year-by-year growth table. The deposit calculator is focused specifically on bank deposits with periodic capitalization and uses local interest rate conventions. Use this for investment modelling (index funds, portfolios) and the deposit calculator for bank savings products.