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Calculate how your savings and investments grow over time with compound interest. See the power of compounding with regular contributions and different compounding frequencies.
This calculator provides estimates for educational purposes. Actual investment returns may vary based on market conditions, fees, and taxes.
Past performance does not guarantee future results. Consult a financial advisor for personalized advice.
Compound interest is interest calculated on the initial principal and all previously accumulated interest. Unlike simple interest, which is calculated only on the principal, compound interest grows exponentially over time. This powerful concept is often called the 'eighth wonder of the world' because it can significantly multiply your wealth over long periods.
Follow these simple steps to calculate your compound interest:
A = P(1 + r/n)^(nt)This formula calculates the future value of an investment with compound interest, where interest is added to the principal at regular intervals.
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]This extended formula includes regular periodic contributions (like monthly deposits), which significantly accelerates wealth building.
AFinal amount (future value)PPrincipal (initial investment)rAnnual interest rate (as decimal)nCompounding periods per yeartTime in yearsPMTRegular contribution amountThe more frequently interest compounds, the more you earn. Here's how different frequencies compare:
Interest calculated every day. Offers the highest returns but the difference from monthly is minimal.
Interest calculated 12 times per year. Most common for savings accounts and investments.
Interest calculated 4 times per year. Common for bonds and some savings products.
Interest calculated once per year. Simplest but yields the least compared to more frequent compounding.
Simple interest is calculated only on the original principal, while compound interest is calculated on both the principal and accumulated interest. For example, $1,000 at 10% simple interest earns $100 per year. With compound interest, the second year earns interest on $1,100, not just $1,000.
More frequent compounding yields higher returns. Daily compounding gives the best results, followed by monthly, quarterly, and annually. However, the difference between daily and monthly compounding is typically small (less than 0.5% per year on most rates).
APY (Annual Percentage Yield) includes the effect of compounding, showing your actual yearly return. APR (Annual Percentage Rate) is the simple interest rate without compounding. APY is always equal to or higher than APR for the same nominal rate.
The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your interest rate to get the approximate years. For example, at 8% interest, your money doubles in roughly 72 ÷ 8 = 9 years.
Regular contributions create a snowball effect. Each contribution starts earning compound interest immediately, and over time, the accumulated contributions and their interest can exceed the growth from the initial principal alone.
Historical stock market returns average 7-10% annually (before inflation). Savings accounts typically offer 0.5-5% depending on economic conditions. Bonds usually fall between these ranges. Always consider fees and taxes when projecting returns.
Yes, inflation reduces purchasing power over time. A 7% return with 3% inflation gives a 'real' return of about 4%. For long-term planning, consider using inflation-adjusted (real) returns for more accurate projections.
Enter your current savings as principal, your expected annual return rate, years until retirement, and your planned monthly contributions. The result shows your projected retirement savings. Adjust the variables to see how different scenarios affect your outcome.