Compound Interest Calculator
Calculate how your investments grow over time with compound interest
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Fill in the form and click Calculate
How to Use This Calculator
Enter your initial investment amount, monthly contribution, expected annual interest rate, time period, and compounding frequency. The calculator will show you the future value of your investment, total contributions, and how much interest you will earn.
Understanding Compound Interest
Compound interest is one of the most powerful concepts in finance. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on both the principal and the accumulated interest from previous periods.
This means your money grows exponentially over time. The longer you invest and the more frequently your interest compounds, the more your money will grow.
The Compound Interest Formula
A = P(1 + r/n)nt
- A = Final amount (future value)
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Number of times interest compounds per year
- t = Number of years
Worked Example: $10,000 + $400/Month for 25 Years at 7%
Sarah, age 35, has $10,000 saved in a brokerage account and commits to adding $400 every month until age 60. She holds a diversified index portfolio returning 7% annually, compounded monthly. Here is exactly how her balance grows over each phase of the 25-year run, so you can see why the last decade does the heavy lifting.
Inputs: Principal $10,000 · Monthly contribution $400 · Annual rate 7% · Compounding frequency monthly (n=12) · Time horizon 25 years.
Formula used: Future value combines two streams — the principal grown by P(1 + r/n)nt and the contribution annuity grown by PMT × [((1 + r/n)nt − 1) / (r/n)]. The monthly periodic rate is 0.07 / 12 = 0.005833, and the total number of compounding periods is 25 × 12 = 300.
Phase 1 — Years 1–5: Balance grows from $10,000 to roughly $42,800. Sarah has contributed $24,000 of new money. Interest earned in this phase: about $8,800. Most of the growth still comes from her own deposits.
Phase 2 — Years 6–15: Balance climbs from $42,800 to about $171,000. Cumulative contributions reach $72,000. Compound interest crosses the contribution line around year 12 — the moment the portfolio starts earning more per year than Sarah deposits.
Phase 3 — Years 16–25: Balance accelerates from $171,000 to $379,494. Cumulative contributions total $130,000 ($10,000 principal + $120,000 of monthly deposits over 300 months). Total interest earned: $249,494 — nearly double the money Sarah put in herself.
Final result at age 60: Future value $379,494, total contributions $130,000, interest earned $249,494. If Sarah waits five more years and lets it compound to age 65 with the same $400/month, the balance grows to roughly $570,000 — illustrating why every extra year at the end of the run matters more than an extra year at the start.
Frequently Asked Questions
What is compound interest?
Compound interest is interest calculated on the initial principal and also on the accumulated interest from previous periods. This means your money grows faster over time as you earn interest on interest.
How often should interest compound?
More frequent compounding (daily vs. annually) results in slightly higher returns. However, the difference is usually small. Monthly or daily compounding is common for savings accounts and investments.
What is a good interest rate for investments?
The S&P 500 has historically returned about 7% per year after inflation. High-yield savings accounts offer 4-5% APY, while bonds typically return 3-5%. Your expected return depends on your risk tolerance.
What is the difference between APR and APY?
APR (Annual Percentage Rate) is the simple interest rate without compounding. APY (Annual Percentage Yield) includes the effect of compounding and shows the actual return you will earn in a year.