Compound Interest Calculator
See the power of compound interest over time and calculate how your investments can grow
Understanding Compound Interest
What is Compound Interest?
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is earned on the principal sum plus previously accumulated interest.
The Magic of Time
The most powerful factor in compound interest is time. The longer your money compounds, the more dramatic the growth becomes. This is why starting to save and invest early is one of the most important financial decisions you can make.
Example of Compound Interest
Let's say you invest $10,000 with an annual interest rate of 5%, compounded annually:
- After 1 year: $10,500 (gained $500)
- After 2 years: $11,025 (gained $525 in second year)
- After 10 years: $16,289 (your money has grown by 63%)
- After 30 years: $43,219 (your money has more than quadrupled)
The longer the time period, the more powerful compound interest becomes, as you earn interest on both your original investment and previously earned interest.
The Rule of 72
The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest.
Years to double = 72 ÷ Interest Rate
For example, at 6% interest, your money will double in approximately 12 years (72 ÷ 6 = 12).
Compound Frequency Matters
The more frequently interest is compounded, the more your money will grow. Compare these different compounding frequencies on $10,000 at 5% for 10 years:
- Annual: $16,289
- Quarterly: $16,436
- Monthly: $16,470
- Daily: $16,487
Tips for Maximizing Compound Interest
Start Early
Even small amounts invested early can outperform larger amounts invested later due to the compounding effect over time.
Be Consistent
Regular contributions, even small ones, can dramatically increase your returns through dollar-cost averaging and continuous compounding.
Reinvest Returns
Whenever possible, reinvest dividends and interest payments rather than taking them as income to maximize the compounding effect.