Compound Interest Calculator
Discover the magic of compounding. See how your initial investment and regular contributions can grow exponentially over time.
*This is an estimate and does not account for inflation or taxes on capital gains.
🏆 The Power of Compound Interest
Everything you need to know about using this calculator and the math behind it.
How it Works
Compound interest is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods. It's how wealth exponentially grows.
The Formula
A = P(1 + r/n)^(nt), where P is principal, r is annual interest rate, n is compounding frequency, and t is time in years.
Pro Tip
Start investing early. Even small, regular contributions can grow massively over decades due to the compounding effect.
Frequently Asked Questions
What exactly is compound interest? +
Compound interest is interest calculated on both the initial principal and the interest already accumulated. Unlike simple interest (which only earns on the principal), compound interest earns interest on interest — causing wealth to grow exponentially rather than linearly.
Which compound frequency is best — daily, monthly, or annually? +
More frequent compounding means slightly more growth. Daily compounding yields a little more than monthly, which yields more than annually. In practice the difference is small at moderate rates — e.g., 10% compounded daily gives 10.516% effective, vs 10.471% monthly and 10% annually. Pick the frequency that matches your actual account (most savings accounts compound daily).
What interest rate should I use? +
It depends on the investment type. High-yield savings accounts currently pay 4–5% APY. The US stock market (S&P 500) has historically returned ~10% nominally or ~7% after inflation. Conservative balanced portfolios typically achieve 5–7%. Bonds average 3–5%. Always use a realistic, conservative estimate for long-term planning.
What is the Rule of 72? +
The Rule of 72 is a quick mental shortcut: divide 72 by your annual interest rate to estimate how many years it takes to double your money. At 6%, your money doubles in about 12 years (72 ÷ 6 = 12). At 9%, it doubles in 8 years. It's an approximation but very accurate for rates between 6% and 10%.
Are compound interest gains taxed? +
Yes, most investment gains are taxable. Interest from savings accounts is taxed as ordinary income annually. Capital gains from investments are taxed when you sell — short-term gains (held under 1 year) at your income tax rate, long-term gains at 0%, 15%, or 20% depending on your income. Tax-advantaged accounts like 401(k)s and IRAs let your investments compound tax-deferred or tax-free.