Compound Interest Calculator

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which only earns on principal), compound interest earns "interest on interest," making it one of the most powerful forces in investing. Albert Einstein allegedly called it the eighth wonder of the world.

A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate (decimal), n is the number of compounding periods per year, and t is the time in years. For example, $5,000 at 7% compounded monthly for 15 years: A = 5000 × (1 + 0.07/12)^(12×15) ≈ $14,178.

The more frequently interest compounds, the more you earn. Daily compounding earns slightly more than monthly, which earns more than quarterly, which earns more than annually. However, the difference is small. Going from annual to monthly compounding on a 7% rate increases the effective rate from 7.00% to just 7.229%. The contribution amount and time invested matter far more than compounding frequency.

The Rule of 72 is a quick mental math shortcut: divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 6%, money doubles in about 12 years (72÷6). At 9%, it doubles in 8 years (72÷9). At 3%, it takes 24 years. This works best for rates between 6%–10%.

Historical returns vary by asset class. The S&P 500 has returned approximately 10% annually (7% after inflation) over the long term. High-yield savings accounts: 4–5% (as of 2024). CDs: 4–5.5%. Government bonds: 4–5%. Corporate bonds: 5–7%. Cryptocurrency: highly variable and speculative. For long-term retirement planning, many financial advisors use 6–7% as a conservative baseline.

Monthly contributions dramatically accelerate wealth-building. For example, $5,000 invested at 7% for 30 years grows to ~$38,061. Adding just $200/month creates a final balance of ~$262,000 — more than 6× larger. The earlier you start contributing, the more powerful the compounding effect due to the exponential nature of growth.