How often does interest compound?

Interest can compound daily, monthly, quarterly, or annually. More frequent compounding leads to slightly higher returns. Most savings accounts compound daily; most investment returns are modeled annually. This calculator uses monthly compounding.

What is the Rule of 72?

The Rule of 72 estimates how long it takes to double your money. Divide 72 by the annual interest rate. At 7%, your money doubles in 72/7 ≈ 10.3 years. At 10%, it doubles in 7.2 years.

What return rate should I use for investments?

The S&P 500 has historically returned about 10% annually (7% inflation-adjusted). Broad index funds are commonly modeled at 7–8% real return. Savings accounts currently offer 4–5%. Use conservative estimates for long-term planning.

How powerful is compound interest over 30 years?

Extremely powerful. $10,000 at 7% for 30 years grows to $76,123 — more than 7x without adding a single dollar. With $200/month contributions, the same scenario grows to $265,534. Starting early is the single biggest factor.

Compound Interest Calculator

See exactly how your money grows over time with the power of compounding. Add regular contributions to maximize your results.

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Annual Interest Rate (%)

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Investment Growth Summary

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What Is Compound Interest?

Compound interest is the process of earning interest on your interest — not just on your original principal. It's why Albert Einstein allegedly called it "the eighth wonder of the world." The longer your money compounds, the more dramatically it grows, because each period's interest becomes part of the new principal for the next period.

Compound vs. Simple Interest

With simple interest, $10,000 at 7% earns exactly $700 per year, every year — totaling $31,000 after 30 years (principal + $21,000 interest). With compound interest at 7%, the same $10,000 grows to $76,123 after 30 years — $45,000 more than simple interest, all from the same single investment.

The Compound Interest Formula

For a lump sum without contributions: A = P(1 + r/n)^(nt), where A = final amount, P = principal, r = annual interest rate, n = compounding frequency per year, t = time in years.

With monthly contributions (C), the formula extends to account for the future value of each contribution: A = P(1 + r/n)^(nt) + C × [(1 + r/n)^(nt) − 1] / (r/n).

The Power of Starting Early

Two investors each invest $200/month at 7% annually. Investor A starts at age 25 and stops at 35 (10 years, $24,000 total). Investor B starts at 35 and invests until 65 (30 years, $72,000 total). At age 65: Investor A has $472,000. Investor B has $243,000 — despite investing 3× as much money. Time, not amount, is the most powerful variable in compounding.

What Interest Rate to Use

Use a rate that reflects your actual investment vehicle: savings accounts currently offer 4–5% APY; I-bonds have historically matched inflation (around 3–4%); diversified stock index funds have returned an average of 10% nominal, 7% inflation-adjusted, over long historical periods. For conservative long-term planning, 6–7% is a reasonable assumption.

Compound Interest Calculator — FAQs

Compound interest earns interest on both the original principal and accumulated interest from prior periods. Unlike simple interest (which only earns on the principal), compound interest causes your balance to grow exponentially — faster and faster over time.

Interest can compound daily, monthly, quarterly, or annually. More frequent compounding yields slightly higher returns. This calculator uses monthly compounding, which is standard for savings accounts and most investments.

The Rule of 72 is a shortcut to estimate how long it takes to double your money. Divide 72 by the annual interest rate. At 7% annual return, your money doubles in approximately 72 ÷ 7 = 10.3 years. At 10%, it doubles in 7.2 years.

The S&P 500 has historically returned about 10% annually before inflation (7% after inflation). For conservative long-term projections, financial planners often use 6–7%. For savings accounts, use the current APY (typically 4–5% in 2025). Always use realistic, conservative estimates.

Yes. Inflation erodes the purchasing power of your returns. If your investment returns 10% annually but inflation is 3%, your real return is about 7%. For retirement planning, always model with inflation-adjusted returns (real returns) to understand how much your money will actually be worth in the future.