Compound Interest Calculator
Understand the power of compound interest. Calculate how your investments can grow over time with regular contributions and interest compounding.
Investment Growth
Understanding Compound Interest
Compound interest is often called the "eighth wonder of the world." Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on the principal amount AND the accumulated interest from previous periods.
The Formula
The basic formula for compound interest is: A = P(1 + r/n)^(nt)
- A = the future value of the investment/loan
- P = the principal investment amount
- r = the annual interest rate (decimal)
- n = the number of times interest compounds per year
- t = the number of years
Why Start Early?
Time is the most powerful factor in compound interest. The longer your money has to grow, the more the interest can compound upon itself. Starting to invest in your 20s versus your 30s can result in hundreds of thousands of dollars difference in your retirement fund, even with smaller contributions, thanks to the exponential nature of compounding.
The Rule of 72
A quick way to estimate how long it takes to double your money is the Rule of 72. Divide 72 by your annual interest rate to get the approximate number of years. For example, at an 8% return, your money doubles in about 9 years (72 / 8 = 9).