Compound Interest Calculator
See how your savings and investments grow over time with the power of compound interest.
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What Is Compound Interest?
Compound interest is interest earned on both your original investment and the interest that has already accumulated. Albert Einstein reportedly called it the "eighth wonder of the world."
Simple example: Invest $10,000 at 7% annual return. After 1 year, you have $10,700. After 2 years, you earn 7% on $10,700 (not just $10,000) = $11,449. This snowball effect grows exponentially over time.
The Compound Interest Formula
A = P(1 + r/n)^(nt)
Where P = principal, r = annual rate, n = compounds per year, t = years.
Why Starting Early Matters
- Start at 25 — Invest $500/month at 7% for 40 years → ~$1.2M
- Start at 35 — Same contributions for 30 years → ~$567K
- Start at 45 — Same contributions for 20 years → ~$247K
Starting 10 years earlier nearly doubles your result — even though you only contribute 33% more. That's the power of compound interest.
Frequently Asked Questions
What is a good annual return rate?
The S&P 500 has historically returned about 10% per year (before inflation). After inflation, the real return is about 7%. For a conservative portfolio, 4-5% is reasonable.
How often should interest compound?
More frequent compounding = more growth. Monthly compounding yields slightly more than annual compounding. Most savings accounts compound daily or monthly.
Should I invest a lump sum or contribute monthly?
Dollar-cost averaging (monthly contributions) reduces risk by spreading purchases over time. But a lump sum invested earlier benefits from more time compounding. Use this calculator to compare both strategies.