Calculate how your money grows with compound interest. See the power of compounding with detailed projections and interactive charts.
Understanding the mechanics behind compound interest and how it accelerates your wealth building over time.
Start with your principal amount - the initial sum you invest or save.
Interest is calculated on both your original principal and previously earned interest.
Your money grows exponentially over time, creating wealth through the power of compounding.
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Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal amount, compound interest allows your money to grow exponentially over time.
Albert Einstein allegedly called compound interest "the eighth wonder of the world," stating that "he who understands it, earns it; he who doesn't, pays it." This powerful financial concept can work for you in investments or against you in debt.
Time is your greatest asset. Even small amounts invested early can grow significantly due to compounding.
Consistent contributions amplify the compounding effect and build wealth systematically.
More frequent compounding (daily vs. annually) results in slightly higher returns.
Always reinvest dividends and interest to maximize the compounding effect.
Common questions about compound interest and our calculator
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest from previous periods. This means compound interest grows exponentially over time, making it much more powerful for long-term investments.
More frequent compounding results in higher returns, but the difference becomes minimal beyond daily compounding. Daily compounding typically provides the best practical balance. The difference between monthly and daily compounding is usually small but can add up over long periods.
Our calculator provides mathematically accurate results based on the compound interest formula. However, real-world investments may have variable returns, fees, taxes, and market fluctuations that aren't reflected in this calculation. Use this as a baseline projection for planning purposes.
Historical stock market returns average around 7-10% annually, while savings accounts typically offer 0.5-2%. Conservative estimates use 6-7% for diversified portfolios, while aggressive growth projections might use 8-10%. Always consider inflation and use realistic rates for your specific investment type.
Regular monthly contributions significantly accelerate wealth building through dollar-cost averaging and increased compounding base. Each contribution starts earning compound interest immediately, creating multiple layers of growth. This strategy is particularly powerful for retirement and long-term savings goals.
Yes, compound interest works the same way for debt as it does for investments, but against you. Credit card debt, for example, compounds monthly. You can use this calculator to see how debt grows over time, which can be a powerful motivator to pay it off quickly.
The Rule of 72 is a quick way to estimate how long it takes for an investment to double. Divide 72 by your interest rate to get the approximate number of years. For example, at 7% interest, your money doubles in about 10.3 years (72 ÷ 7 = 10.3). This rule demonstrates the power of compound interest.
Yes, inflation reduces the purchasing power of your future money. Historical inflation averages around 2-3% annually. To find your "real" return, subtract the inflation rate from your interest rate. For example, 7% return minus 3% inflation equals 4% real growth in purchasing power.
Taxes can significantly impact compound growth, especially in taxable accounts. Interest and dividends may be taxed annually, reducing the amount available for compounding. Tax-advantaged accounts like 401(k)s and IRAs allow full compounding without annual tax drag, making them powerful wealth-building tools.
There's no minimum amount - compound interest works on any principal, even $1. However, the absolute dollar growth will be proportional to your starting amount. The key is to start as early as possible, even with small amounts, and let time work in your favor. Many successful investors started with very modest sums.