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How to use the Compound Interest Calculator
- 1Enter your starting amount (initial deposit).
- 2Add how much you plan to contribute each month.
- 3Set the expected annual interest rate or return and the number of years.
- 4Pick the compounding frequency and review the growth table.
What is compound interest?
Compound interest is interest earned on both your original money and on the interest it has already earned. Over long periods this snowball effect becomes powerful: money invested at 7% a year roughly doubles every 10 years.
The future value of a lump sum is A = P(1 + r/n)^(nt), where P is the principal, r the annual rate, n the number of compounding periods per year and t the number of years. Regular contributions are added on top of that.
The rule of 72
A quick way to estimate doubling time: divide 72 by the annual interest rate. At 6% money doubles in about 12 years; at 9% in about 8 years.
The power of time: $10,000 + $500 a month at 7%
Start with $10,000, add $500 every month and earn 7% a year, compounded monthly. The longer you wait, the more of your balance comes from interest rather than your own money:
| Years | Balance | You contributed | Interest earned |
|---|---|---|---|
| 10 | $106,639 | $70,000 | $36,639 |
| 20 | $300,851 | $130,000 | $170,851 |
| 30 | $691,150 | $190,000 | $501,150 |
| 40 | $1,475,521 | $250,000 | $1,225,521 |
Start early, even with less
Someone who invests for 40 years ends up with more than twice the balance of someone who invests the same monthly amount for 30 years, even though they only contributed 32% more. Starting early matters more than investing large amounts later.
Frequently asked questions
What interest rate should I use?
For high-yield savings accounts use the current APY offered by your bank. For long-term stock market investing, many people use 6–8% as a conservative long-run average, but returns are never guaranteed.
Does compounding frequency matter much?
More frequent compounding earns slightly more, but the difference between monthly and daily compounding is small. The rate and the time invested matter far more.
Are taxes and inflation included?
No. Results are before taxes and inflation. To approximate real (inflation-adjusted) growth, subtract the expected inflation rate from your interest rate.