About Compound Interest Calculator
Calculate investment growth with compound interest and regular contributions. See year-by-year
breakdown of your investment's growth.
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and accumulated interest from
previous periods. It's "interest on interest" and causes faster growth than simple interest.
Compound Interest Formula
With Regular Contributions:
FV = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]
Where:
FV = Future Value
P = Principal (initial deposit)
PMT = Regular contribution
r = Annual interest rate (decimal)
n = Compounding frequency per year
t = Time in years
Example Calculation
Scenario:
Initial Deposit: $10,000
Monthly Contribution: $500
Interest Rate: 7% annually
Time: 20 years
Compounding: Monthly
Result:
Total Contributions: $130,000
Interest Earned: $141,679
Final Balance: $271,679
Return: 109%
Factors Affecting Growth
- Principal: More initial investment = more growth
- Contributions: Regular deposits accelerate growth
- Interest Rate: Higher rates = exponential growth
- Time: Longer periods = dramatic compounding effect
- Frequency: More frequent compounding = slightly higher returns
Power of Compounding
Time is the most powerful factor. Starting early, even with small amounts, beats starting late with
larger amounts.
Start at 25: $200/month for 40 years at 7% = $525,000
Start at 35: $400/month for 30 years at 7% = $489,000
Starting 10 years earlier with half the contribution yields more!
Tips for Maximizing Returns
- Start investing as early as possible
- Make regular contributions consistently
- Reinvest all dividends and interest
- Choose investments with higher returns (balanced with risk)
- Avoid withdrawing early - let compound work
- Increase contributions when income rises
Common Investment Accounts
| Account Type |
Typical Return |
Tax Treatment |
| 401(k) |
7-10% |
Tax-deferred |
| IRA |
7-10% |
Tax-deferred or tax-free (Roth) |
| Index Funds |
8-12% |
Taxable |
| Savings Account |
4-5% |
Taxable |
| CD |
4-5.5% |
Taxable |
Frequently Asked Questions
How much should I save for retirement?
Financial advisors suggest saving 10-15% of income. If starting late, increase to 20-25%. Use this
calculator to see if you're on track.
Is compound interest really that powerful?
Yes! Albert Einstein allegedly called it "the eighth wonder of the world." Small differences in rate
or time create huge differences in final value.
Should I pay off debt or invest?
Generally, pay off high-interest debt (credit cards) first. If debt interest rate < investment
return, consider investing while paying minimum debt payments.