Compound Interest Calculator
Compound Interest Calculator
Discover the power of ‘interest on interest’. See how your investments can grow exponentially over time with regular contributions. Essential for planning in the US, Europe, and Australia.
Calculate Your Growth
Growth Over Time
This chart shows how your investment grows, separating your total deposits from the interest earned through compounding.
Making Compound Interest Work For You
Compound interest is the process where the interest earned on your savings or investments is reinvested, so that in subsequent periods, you earn interest on the original amount and on the accumulated interest [citation:2][citation:8]. This creates an exponential growth effect, often compared to a snowball rolling downhill and gathering more snow.
As Warren Buffett, one of the world’s most successful investors, said: “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” [citation:2]
Key Strategies to Maximize Growth
- Start Early: Time is the most critical factor. Even small amounts invested early can outperform larger amounts invested later due to more compounding periods.
- Make Regular Contributions: Consistent deposits significantly amplify the compounding effect, as each new contribution starts earning its own interest.
- Reinvest Your Earnings: Ensure your interest or dividends are set to reinvest, not paid out as cash, to fully benefit from compounding.
- Understand the Frequency: Interest that compounds more frequently (e.g., monthly vs. annually) will yield slightly higher returns over the long term [citation:8].
Frequently Asked Questions
Simple interest is calculated only on the initial principal amount. For example, $100 at 5% for 3 years earns $5 each year, totaling $15.
Compound interest is calculated on the principal and the accumulated interest. In year 2, you earn interest on $105, not $100. This “interest on interest” effect leads to much greater growth over time [citation:8].
The more often interest is compounded, the higher your effective return will be. A 6% annual rate compounded monthly yields more than 6% compounded annually. Our calculator accounts for this using standard financial formulas [citation:8]. The differences are more pronounced over longer periods and with higher rates.
Yes, it’s an excellent starting point. It helps visualize the potential growth of regular retirement account contributions (like a 401(k) or IRA). For detailed retirement planning, consider consulting a financial advisor to account for taxes, inflation, and specific investment products.