Compound Interest Calculator
See the Power of Compounding
Understanding Compound Interest
Albert Einstein reportedly called compound interest "the eighth wonder of the world." Whether or not he actually said it, the math backs it up. Compound interest creates exponential growth — your money earns returns, then those returns earn returns, and so on.
The three most important factors are: the amount you invest, the rate of return, and time. Of these three, time is the most powerful because compound growth is exponential. Starting 10 years earlier matters more than investing twice as much per month.
The Formula
- FV = Future value
- P = Principal (starting amount)
- r = Rate per period (annual rate ÷ 12 for monthly)
- n = Number of periods
- PMT = Regular contribution
Maximizing Compound Growth
- Start immediately — The most common regret of wealthy investors is not starting sooner. Even $100/month at age 22 beats $500/month at age 35 over a lifetime.
- Never interrupt compounding — Pulling money out resets the clock. Leave your investments alone through market volatility. Missing the 10 best trading days over 20 years cuts returns nearly in half.
- Reinvest dividends — Roughly 40% of the stock market's total return has come from reinvested dividends over the past century. Set your accounts to automatic dividend reinvestment.
- Minimize fees — A 1% annual fee on a $100,000 portfolio costs you $28,000+ over 20 years when you account for lost compounding. Use index funds with expense ratios under 0.10%.
- Use the Rule of 72 — Divide 72 by your expected return to estimate doubling time. At 7%: money doubles every ~10 years. At 10%: every ~7 years. This helps set realistic expectations.
Frequently Asked Questions
What is compound interest?
Compound interest is interest earned on both your original principal AND previously earned interest. It's what makes investing powerful over time. Simple interest only earns on the principal. With compound interest at 7%, $10,000 grows to $19,672 in 10 years — versus $17,000 with simple interest.
How often does interest compound?
Most savings accounts compound daily. Many investments compound based on the frequency of returns. The more frequently interest compounds, the faster your money grows. However, the difference between daily and monthly compounding is relatively small — the big factor is the interest rate and time.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual return rate. At 7% returns: 72 ÷ 7 ≈ 10.3 years to double. At 10%: 72 ÷ 10 = 7.2 years. At 3%: 72 ÷ 3 = 24 years. It's remarkably accurate for rates between 4-12%.
What is a realistic rate of return to expect?
The S&P 500 has returned approximately 10% annually before inflation (7% after) over the past century. High-yield savings accounts currently offer 4-5%. Government bonds yield 4-5%. Aggressive portfolios (100% stocks) might expect 8-10%, while balanced portfolios (60/40) might expect 6-8%.