Compound Interest Calculator
Calculate how your investments grow over time with compound interest
Investment Details
Understanding Compound Interest
What is Compound Interest?
Compound interest is often called the "eighth wonder of the world." It is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
Unlike simple interest, which is calculated only on the principal amount, compound interest allows your money to grow faster because you earn interest on your interest.
Compounding Frequency: Why It Matters
The frequency with which interest is compounded—daily, monthly, or annually—can have a surprising impact on your total returns. The more frequently interest is added to your account, the more quickly your balance grows because that new interest starts earning interest sooner.
"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't, pays it." — Albert Einstein
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the initial principal. Compound interest is calculated on the principal PLUS all of the interest that has accumulated from previous periods. This "interest on interest" is what leads to exponential growth over time.
How can I maximize my compound interest?
There are three main levers you can pull: 1) Time: Start as early as possible. 2) Yield: Seek higher interest rates (while balancing risk). 3) Frequency: Choose accounts that compound interest more frequently (like daily or monthly).
Does this calculator account for taxes or inflation?
No, this is a "nominal" growth calculator. In reality, you should consider that capital gains taxes or income taxes may apply to your earnings, and inflation will reduce the purchasing power of your future dollars.
Is the "Rule of 72" always accurate?
The Rule of 72 is a very close approximation for interest rates between 5% and 20%. It becomes less accurate at extremely high or low interest rates, but for most investors, it’s a perfect "back-of-the-napkin" tool.
Understanding Compound Interest
What is Compound Interest?
Compound interest is often called the "eighth wonder of the world." It is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
Unlike simple interest, which is calculated only on the principal amount, compound interest allows your money to grow faster because you earn interest on your interest.
Compounding Frequency: Why It Matters
The frequency with which interest is compounded—daily, monthly, or annually—can have a surprising impact on your total returns. The more frequently interest is added to your account, the more quickly your balance grows because that new interest starts earning interest sooner.
"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't, pays it." — Albert Einstein
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the initial principal. Compound interest is calculated on the principal PLUS all of the interest that has accumulated from previous periods. This "interest on interest" is what leads to exponential growth over time.
How can I maximize my compound interest?
There are three main levers you can pull: 1) Time: Start as early as possible. 2) Yield: Seek higher interest rates (while balancing risk). 3) Frequency: Choose accounts that compound interest more frequently (like daily or monthly).
Does this calculator account for taxes or inflation?
No, this is a "nominal" growth calculator. In reality, you should consider that capital gains taxes or income taxes may apply to your earnings, and inflation will reduce the purchasing power of your future dollars.
Is the "Rule of 72" always accurate?
The Rule of 72 is a very close approximation for interest rates between 5% and 20%. It becomes less accurate at extremely high or low interest rates, but for most investors, it’s a perfect "back-of-the-napkin" tool.