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 principal), compound interest creates a snowball effect where your money grows exponentially over time. Albert Einstein reportedly called it "the eighth wonder of the world."

More frequent compounding leads to slightly higher returns. Daily compounding earns more than monthly, which earns more than quarterly, which earns more than annual. However, the difference is usually small — the biggest factors are your interest rate, time horizon, and contribution amount.

The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual interest rate — for example, at 7% interest, your money doubles in approximately 72 ÷ 7 ≈ 10.3 years. This rule works well for rates between 2-15%.

Regular contributions dramatically accelerate wealth building through dollar-cost averaging and compounding. For example, $500/month invested at 7% for 20 years turns into about $260,000 — but only $120,000 of that is your contributions. The rest is compound interest working in your favor.

This calculator shows nominal (pre-tax, pre-inflation) returns. For a more realistic picture, you can reduce the interest rate by your expected inflation rate (typically 2-3%) and consider that investment gains may be taxed. Tax-advantaged accounts like 401(k)s and Roth IRAs can help reduce the tax impact.