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 the original amount, compound interest accelerates your wealth growth exponentially over time. Einstein reportedly called it the eighth wonder of the world — and the math backs that up.

The formula is: A = P(1 + r/n)^nt, where P is the principal, r is the annual rate, n is the compounding frequency, and t is time in years. Adding regular monthly contributions dramatically increases the final value through dollar-cost averaging.

For example, investing $10,000 at 7% annual return with $500 monthly contributions for 20 years can grow to over $300,000 — with more than half of that coming from compound interest alone. Starting early is the single most powerful factor in building wealth.

Daily compounding produces slightly higher returns than monthly, which beats quarterly, which beats annual. However, the difference is smaller than most people expect. On a $10,000 investment at 7% for 10 years: annual compounding yields $19,672, monthly yields $20,097, and daily yields $20,138. The difference between annual and daily is only $466 over a decade.

Most savings accounts and CDs compound daily. Most investment accounts effectively compound based on market returns, which don't follow a fixed schedule. For practical purposes, monthly compounding is the most realistic assumption for investment projections.

Financial advisors generally recommend investing 15-20% of your gross income for retirement. If that feels out of reach, start with whatever you can — even $50 or $100 per month. The most important step is starting. You can always increase your contributions as your income grows.

Use this calculator to experiment with different monthly contribution amounts and see how they affect your long-term wealth. You'll notice that increasing your monthly contribution by even $100 can add tens of thousands of dollars over 20-30 years thanks to the compounding effect.

Simple interest is calculated only on the original principal. If you invest $10,000 at 7% simple interest for 20 years, you earn $14,000 in interest for a total of $24,000. With compound interest at the same rate, you'd have $38,697 — over $14,000 more. The longer the time period, the bigger the gap between simple and compound interest.