Compound Interest Calculator
Calculate compound interest and project your investment growth. Plan your financial future with our free compound interest calculator. See how your money can grow!
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Purpose
Compound interest earns interest on both your principal and previously accumulated interest, making your money grow faster over time. This calculator projects future value of savings or investments based on initial amount, interest rate, compounding frequency, and time period. It's essential for retirement planning, savings goals, and comparing investment options.
How to use
- Initial Investment: Enter your starting amount
- Monthly Contribution: Optional regular deposits
- Interest Rate: Annual rate as a percentage
- Investment Period: Number of years
- Compounding Frequency: How often interest compounds (12 = monthly, 4 = quarterly, 1 = annually)
- Click Calculate to see your projected future value and total interest earned
Examples
Example 1: Basic Savings
$5,000 at 4% compounded monthly for 10 years:
Future Value ≈ $7,446
Interest Earned: $2,446
Example 2: Retirement with Monthly Contributions
$10,000 initial + $200/month at 7% for 20 years:
Future Value ≈ $116,775
The combination of compounding and regular contributions accelerates growth significantly.
How it works
The formula for compound interest is:
FV = PV (1 + r/n)^(nt)
Where:
- FV = Future Value of the investment/loan, including interest
- PV = Present Value of the investment/loan (the initial principal amount)
- r = Annual interest rate (as a decimal)
- n = Number of times that interest is compounded per year
- t = Number of years the money is invested or borrowed for
For example, if you invest $1,000 (PV) at an annual interest rate of 5% (r = 0.05), compounded annually (n = 1) for 10 years (t = 10), the future value (FV) would be calculated as follows:
FV = 1000 (1 + 0.05/1)^(1*10)
FV = 1000 (1 + 0.05)^10
FV = 1000 (1.05)^10
FV ≈ 1000 * 1.62889
FV ≈ $1,628.89
This demonstrates how the initial investment grows over time due to the compounding effect of interest.
FAQ
What's the difference between simple and compound interest?
Simple interest is calculated only on the principal. Compound interest is calculated on principal plus accumulated interest, allowing your money to grow faster because you earn interest on interest.
How does compounding frequency affect returns?
More frequent compounding yields higher returns. Monthly compounding (12x/year) produces slightly more than annual compounding (1x/year) with the same rate, because interest is added to principal more often.
What is the Rule of 72?
A quick way to estimate how long it takes money to double: divide 72 by the interest rate. At 6% interest, money doubles in approximately 72 ÷ 6 = 12 years.
What investments use compound interest?
Savings accounts, CDs, bonds, and retirement accounts (401k, IRA) all use compound interest. Most long-term investments benefit from compounding.
Is interest taxable?
Yes, in taxable accounts interest is taxed as income when earned. Tax-deferred accounts (401k, traditional IRA) defer taxes until withdrawal. Roth accounts grow tax-free.