Compound Interest Calculator

Unlock the Power of Exponential Growth

The Magic of Compound Interest

Albert Einstein allegedly called compound interest "the eighth wonder of the world." This isn't hyperbole—compound interest is the most powerful force in wealth building. When you earn interest on your money, and then earn interest on that interest, your wealth grows exponentially rather than linearly. This seemingly small difference creates dramatically different outcomes over time, transforming modest investments into substantial wealth.

How Compound Interest Works

Compound interest is the interest you earn on both your principal (original investment) and the accumulated interest from previous periods. Here's a simple example: If you invest $10,000 at 5% annual interest, after year one you have $10,500. In year two, you earn 5% not just on your original $10,000, but on the entire $10,500, earning $525 instead of $500. This difference compounds each year, accelerating your wealth growth.

The power of compounding increases dramatically over time. At 7% annual returns, your money doubles every 10 years. This means a 30-year investment timeline experiences three "doublings," multiplying your initial investment by a factor of eight!

Compounding Frequency Matters

Annually: Interest is calculated and added once per year. This is the simplest form but provides the lowest returns.

Semi-Annually: Interest is calculated twice yearly, slightly increasing returns.

Quarterly: Interest compounds four times per year, further increasing returns.

Monthly: Most common for savings accounts and CDs, compounding 12 times annually.

Daily: Some high-yield savings accounts compound daily (365 times per year), maximizing returns. The difference between daily and monthly compounding is small but noticeable over decades.

Real-World Examples

Let's say Sarah invests $10,000 at 5% annual interest. Without additional contributions:

  • After 10 years: $16,289
  • After 20 years: $26,533
  • After 30 years: $43,219

But if Sarah adds $100 monthly (which is more realistic), her results dramatically improve:

  • After 10 years: $21,137 (additional $4,848 from contributions)
  • After 20 years: $48,611 (additional $24,000 from contributions)
  • After 30 years: $93,255 (additional $36,000 from contributions, plus much more from compounding)

Notice how the additional growth accelerates over time—that's the power of compound interest working for you.

Tips for Maximizing Compound Interest

  • Start Early: Time is your greatest asset. Starting at age 25 vs. 35 can nearly double your retirement savings.
  • Be Consistent: Regular contributions, even small ones, dramatically impact your final balance through the power of compounding.
  • Minimize Withdrawals: Every dollar withdrawn loses decades of potential growth. Avoid touching investments until absolutely necessary.
  • Seek Higher Returns Safely: Moving from a 3% savings account to a 5% high-yield account increases long-term returns by 66% or more.
  • Reduce Fees: Investment fees compound negatively. A 1% fee reduces 30-year returns by approximately 25%.
  • Reinvest Dividends: Always reinvest dividends and interest rather than withdrawing them to maximize compounding.

Enter Your Information

Results

Final Amount
$0
Interest Earned
$0
Total Contributions
$0
Effective Annual Rate
0%

Frequently Asked Questions About Compound Interest

Interest can compound daily, weekly, monthly, quarterly, semi-annually, or annually. More frequent compounding results in higher returns. Daily compounding is best, but the difference between daily and monthly compounding is usually less than 0.3% annually. Always check your account terms to understand compounding frequency.
Simple interest is calculated only on the principal amount and stays constant each period. Compound interest is calculated on both the principal and accumulated interest, growing exponentially. Over 10 years, $10,000 at 5% simple interest yields $5,000 in interest, while compound interest yields $6,289—27% more.
Use the Rule of 72: divide 72 by your annual interest rate. At 6% interest, your money doubles in 12 years (72 ÷ 6 = 12). At 8% interest, it doubles in 9 years. This rule gives you a quick estimate without needing a calculator.
Yes. While your account grows nominally, inflation reduces its purchasing power. If you earn 5% interest but inflation is 3%, your real return is only 2%. When evaluating investments, always consider the inflation-adjusted (real) return, not just the nominal return.
Yes. High-yield savings accounts (4-5% APY) are better than traditional savings accounts (0.01%). Money market accounts, CDs, and bonds offer competitive rates. Compare rates frequently, as they change based on Federal Reserve policy and bank competition.
Interest earned is typically taxed as ordinary income, which can be 10-37% depending on your tax bracket. Tax-advantaged accounts like IRAs and 401(k)s defer or eliminate these taxes, allowing interest to compound tax-free. This is one reason retirement accounts are so powerful for building wealth.