Calculate how savings and investments grow over time through the power of compound interest, with optional regular contributions.
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Total Interest
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Return
0%Compound interest is often called "interest on interest." Unlike simple interest, where you only earn money on your initial investment (principal), compound interest allows you to earn returns on both your principal and the interest you've already accumulated.
For example, if you invest $1,000 at a 5% annual rate, you earn $50 in the first year. In the second year, you earn 5% on $1,050 (your original $1,000 plus the $50 interest), resulting in $52.50. This creates an exponential growth curve that accelerates significantly over time.
For those who want to see the math behind the numbers:
Imagine you start with $5,000, earn a 6% annual return, compounded monthly, and leave it alone for 20 years. Here is how your money would grow compared to simple interest:
| Year | Simple Interest Value | Compound Interest Value | Difference |
|---|---|---|---|
| Year 1 | $5,300 | $5,308 | +$8 |
| Year 10 | $8,000 | $9,096 | +$1,096 |
| Year 20 | $11,000 | $16,551 | +$5,551 |
The more frequently interest is added to your account, the more you earn. However, the difference diminishes between daily and continuous compounding for smaller amounts.
Rule of Thumb: While daily compounding is better than annual, the interest rate (APY) and time in the market are far more important factors for growth.
Interest rate is the nominal rate (e.g., 5% annual). APY (Annual Percentage Yield) accounts for compounding frequency and shows the effective annual return. A 5% annual rate compounded daily yields ~5.13% APY.
More frequent contributions (monthly vs. annual) generally grow faster because the money enters the compounding cycle sooner. However, consistency is key—start with what fits your budget.
Yes. In taxable accounts, you pay tax on interest earned annually, which lowers your effective return. Tax-advantaged accounts like IRAs or 401(k)s allow your money to grow tax-deferred.
Yes. On loans and credit cards, compound interest works in the lender's favor. High-interest debt compounds rapidly, which is why paying off credit card debt is often the best financial move.
A quick mental math shortcut to estimate how long it takes to double your money.
72 ÷ Interest Rate = Years to Double
Example: At 6% return, your money doubles in ~12 years (72 ÷ 6).
This calculator is provided for educational and estimation purposes only and does not constitute financial advice. Actual returns may vary based on market conditions, account fees, taxation, and individual circumstances. Calculations assume that interest rates remain constant throughout the period, whereas real-world rates fluctuate. The results are based on the standard compound interest formula A = P(1 + r/n)^(nt) and have been validated against standard academic finance methodologies. Please consult a qualified financial advisor before making investment decisions.