Compound Interest Calculator
Understanding Compound Interest
Compound interest is often referred to as the "eighth wonder of the world" because of its ability to exponentially grow your wealth over time. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on the principal amount plus any accumulated interest.
How to Use This Calculator
To get the most accurate results, input your starting balance (the initial investment), how much you plan to contribute regularly, and your expected annual rate of return. Adjust the compound frequency to match how often your interest is calculated—monthly is standard for many savings accounts and investments.
The Formula Behind the Growth
This calculator uses the standard compound interest formula combined with a future value of a series formula to account for regular contributions:
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) – 1) / (r/n)]
Where A is the future value, P is the principal investment, PMT is the regular contribution, r is the annual interest rate (decimal), n is the number of times interest is compounded per year, and t is the time in years.
Why Starting Early Matters
Time is the most critical factor in compound interest. The longer your money has to grow, the more significant the compounding effect becomes. Even small contributions made early can outperform larger contributions made later in life.