Compound Interest Calculator
Calculate how your investments grow over time with compound interest and regular contributions.
How Compound Interest Works
Compound interest is often called the "eighth wonder of the world" because of its powerful ability to grow wealth over time. Unlike simple interest, which only earns returns on your original deposit, compound interest earns returns on both your principal and all previously accumulated interest.
The Compound Interest Formula
This calculator uses the standard compound interest formula with monthly compounding: FV = P(1 + r/n)^(nt) + PMT x [((1 + r/n)^(nt) - 1) / (r/n)], where P is your initial investment, r is the annual rate, n is compounding frequency (12 for monthly), t is years, and PMT is your monthly contribution.
Tips for Maximizing Growth
Start investing as early as possible — time is the most important factor in compound growth. Even small monthly contributions add up significantly over decades. Increase your contributions whenever you get a raise. Consider tax-advantaged accounts like 401(k)s and IRAs, which let your investments compound without annual tax drag. Stay invested through market downturns to capture the full benefit of long-term compounding.
Understanding the Results
The "Future Value" shows your total account balance at the end of the period. "Total Contributions" is the sum of your initial investment plus all monthly deposits. "Total Interest Earned" is the difference — the money your money made for you. The higher this number relative to your contributions, the more compound interest has worked in your favor.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only earns interest on the original amount, compound interest allows your money to grow exponentially over time.
How often is interest compounded?
This calculator uses monthly compounding, which is the most common frequency for savings accounts and investment accounts. Other compounding frequencies include daily, quarterly, and annually. More frequent compounding results in slightly higher returns.
What is a realistic rate of return?
High-yield savings accounts currently offer 4-5% APY. The S&P 500 has historically returned about 10% annually before inflation (roughly 7% after inflation). Bond funds typically return 3-5%. Your actual return depends on your investment mix and risk tolerance.
How does monthly contribution affect growth?
Regular monthly contributions have a dramatic impact on long-term wealth building due to dollar-cost averaging. Even small monthly additions compound over time. For example, contributing just $200/month at 8% for 30 years yields over $298,000 — with only $72,000 contributed out of pocket.