Financial Tool

Compound Interest Calculator

Calculate interest on principal and accumulated interest.

Σ The Formula

A = P(1 + r/n)^(nt) | Interest = A - P | where n = compounding frequency

Real World Examples

Investment Growth
$10,000 at 5% compounded monthly for 5 years: A = $10,000(1 + 0.05/12)^(12×5) = $12,833.59
Retirement Savings
$25,000 at 7% compounded annually for 10 years: A = $25,000(1.07)^10 = $49,177.79
Daily Compounding
$5,000 at 4% compounded daily for 3 years: A = $5,000(1 + 0.04/365)^(365×3) = $5,637.48
Long-term Growth
$1,000 at 8% compounded quarterly for 20 years: A = $1,000(1.02)^80 = $4,875.44

# About This Calculator

Compound interest is often called the "eighth wonder of the world" because it's the process where your money earns interest, and then that interest earns interest, creating exponential growth over time. Unlike simple interest which only calculates on the principal, compound interest accelerates wealth accumulation.

The power of compounding depends on three factors: the interest rate, the compounding frequency (how often interest is added), and time. More frequent compounding (daily vs annually) and longer time periods dramatically increase returns. This is why starting to save early for retirement is so crucial - time is your greatest ally.

The formula A = P(1 + r/n)^(nt) calculates the final amount where P is principal, r is annual rate, n is compounding frequency per year, and t is time in years. For example, monthly compounding means n=12, quarterly means n=4, daily means n=365. More frequent compounding yields slightly higher returns.

This calculator is essential for retirement planning, comparing investment options, understanding loan costs, or evaluating savings accounts. It shows both the final amount and the interest earned, helping you visualize how your money grows and make informed financial decisions.

How To Use

  1. Enter Principal.
  2. Enter Annual Rate.
  3. Enter Time (Years).
  4. Select Frequency.

Frequently Asked Questions

What's the difference between compound and simple interest?+

Simple interest: I = P × r × t (interest only on principal). Compound interest: A = P(1 + r/n)^(nt) (interest on principal + accumulated interest). For $10,000 at 5% for 10 years: Simple = $15,000, Compound (annual) = $16,288.95. Compounding earns $1,288.95 more!

Does compounding frequency really matter?+

Yes, but the effect diminishes with higher frequencies. For $10,000 at 5% for 5 years: Annual = $12,762.82, Monthly = $12,833.59, Daily = $12,840.03. The jump from annual to monthly is bigger than monthly to daily. Most savings accounts compound daily.

What is the Rule of 72?+

A quick way to estimate doubling time: divide 72 by the interest rate. At 6% annual interest, money doubles in approximately 72/6 = 12 years. At 9%, it doubles in 8 years. This rule works best for rates between 6-10%.

How does inflation affect compound interest?+

Inflation reduces purchasing power. If you earn 5% but inflation is 3%, your 'real return' is only ~2%. Always consider inflation-adjusted returns for long-term planning. Aim for returns that beat inflation by 2-3% to grow wealth meaningfully.

Can compound interest work against me?+

Yes! Credit card debt compounds against you. If you owe $5,000 at 18% APR compounded daily and only make minimum payments, you'll pay thousands in interest. This is why paying off high-interest debt should be a priority before investing.

What's continuous compounding?+

The theoretical limit where n approaches infinity. Formula: A = Pe^(rt). In practice, daily compounding is nearly identical to continuous. For $10,000 at 5% for 5 years: Daily = $12,840.03, Continuous = $12,840.25. Difference is negligible.

About

Compound interest is often called the "eighth wonder of the world" because it's the process where your money earns interest, and then that interest earns interest, creating exponential growth over time. Unlike simple interest which only calculates on the principal, compound interest accelerates wealth accumulation.

The power of compounding depends on three factors: the interest rate, the compounding frequency (how often interest is added), and time. More frequent compounding (daily vs annually) and longer time periods dramatically increase returns. This is why starting to save early for retirement is so crucial - time is your greatest ally.

The formula A = P(1 + r/n)^(nt) calculates the final amount where P is principal, r is annual rate, n is compounding frequency per year, and t is time in years. For example, monthly compounding means n=12, quarterly means n=4, daily means n=365. More frequent compounding yields slightly higher returns.

This calculator is essential for retirement planning, comparing investment options, understanding loan costs, or evaluating savings accounts. It shows both the final amount and the interest earned, helping you visualize how your money grows and make informed financial decisions.

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