Compound Interest Calculator
Calculate how your investments grow with compound interest over time
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Back to Finance CalculatorsUnderstanding Compound Interest
Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only calculates interest on the principal amount, compound interest allows your money to grow exponentially over time. This powerful financial concept is often called "interest on interest" and is the key to building long-term wealth through investments and savings.
Our compound interest calculator helps you visualize how your investments will grow over time with different compounding frequencies—daily, monthly, quarterly, or annually. For example, if you invest $10,000 at 8% annual interest compounded monthly for 20 years, your investment would grow to approximately $49,268.03, earning $39,268.03 in compound interest. The more frequently interest compounds, the more you earn.
Whether you're planning for retirement, saving for a down payment, or evaluating investment opportunities, understanding compound interest is essential. Use this calculator to compare different scenarios, adjust variables, and make informed decisions about your financial future. Albert Einstein reportedly called compound interest "the eighth wonder of the world" for good reason.
Frequently Asked Questions
What is the difference between compound and simple interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest. This means compound interest grows exponentially over time, resulting in significantly higher returns for long-term investments. For example, $1,000 at 10% for 10 years yields $1,000 in simple interest but approximately $1,593.74 in compound interest.
How does compounding frequency affect my returns?
The more frequently interest compounds, the more you earn. Daily compounding generates slightly higher returns than monthly, which generates more than quarterly or annual compounding. However, the difference is relatively small. For most investments, the interest rate and time period have a much larger impact on returns than compounding frequency.
What is the Rule of 72 for compound interest?
The Rule of 72 is a simple way to estimate how long it takes for an investment to double with compound interest. Divide 72 by your annual interest rate to get the approximate number of years. For example, at 8% annual interest, your money doubles in about 9 years (72 Ă· 8 = 9). This rule provides a quick mental calculation for investment planning.
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