Compound Interest Calculator

How to Use the Compound Interest Calculator

Enter your initial investment (principal), annual interest rate, time period in years, and compounding frequency. Click "Calculate" to see the final amount, total interest earned, growth multiplier, and a detailed year-by-year growth table showing how your investment compounds over time.

What Is Compound Interest?

Compound interest is one of the most powerful concepts in finance. It is interest calculated on both the initial principal and the accumulated interest from previous periods. Albert Einstein reportedly called it the "eighth wonder of the world," saying, "He who understands it, earns it; he who doesn't, pays it."

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

Compound Interest vs. Simple Interest

Simple interest is calculated only on the original principal. If you invest $10,000 at 5% simple interest for 10 years, you earn $500 per year, totaling $5,000 in interest. With compound interest at the same rate, compounded annually, you earn $6,288.95 — that is $1,288.95 more. The difference grows dramatically over longer periods.

The Power of Time

Time is the most important factor in compound interest. Starting early, even with smaller amounts, can result in dramatically more wealth than starting later with larger amounts. For example, investing $200/month starting at age 25 at 7% annual return yields approximately $525,000 by age 65. Starting the same investment at age 35 yields only about $244,000 — less than half.

Compounding Frequency Explained

• Annually (1x/year): Interest is calculated and added once per year.
• Quarterly (4x/year): Interest is calculated and added four times per year.
• Monthly (12x/year): The most common frequency for savings accounts and investments.
• Daily (365x/year): The highest practical frequency, used by some high-yield savings accounts.

Real-World Applications

Retirement Planning

Compound interest is the engine behind retirement savings. Accounts like 401(k)s and IRAs grow through compounding, making early and consistent contributions crucial for a comfortable retirement.

Savings Accounts

High-yield savings accounts and certificates of deposit (CDs) use compound interest to grow your money. Comparing APY (Annual Percentage Yield) between banks helps you find the best returns.

Debt Management

Compound interest works against you with debt. Credit card balances, student loans, and mortgages all accrue compound interest, making it important to pay down high-interest debt as quickly as possible.

Tips for Maximizing Compound Interest

• Start investing as early as possible — time is your greatest advantage.
• Choose accounts with higher compounding frequencies and APY.
• Reinvest dividends and interest instead of withdrawing them.
• Be consistent with regular contributions, even if they are small.
• Minimize fees, which reduce your effective return.