Compound Interest Calculator

Compound interest is interest calculated on both your original principal and on the interest that has already accumulated. This is fundamentally different from simple interest, which is paid only on the principal. Because each period's interest is added to the balance and then earns interest itself, your money grows at an accelerating rate — the longer the time horizon, the more dramatic the effect.

Three factors drive compound growth: the interest rate, the compounding frequency, and time. A higher rate obviously helps, but time is the most powerful variable of all. Money invested in your twenties has decades to compound, which is why financial advisors stress starting early even with small amounts. Compounding frequency matters too: interest that compounds daily grows slightly faster than the same rate compounded annually, because gains are reinvested sooner.

Regular contributions supercharge the effect. Adding a fixed amount each month — known as dollar-cost averaging when investing — means you are constantly increasing the principal base that compounds. Over 30 or 40 years, modest monthly deposits can grow into a balance many times larger than the total you actually contributed, with the difference made up entirely of compounded returns.

The famous "Rule of 72" offers a quick mental shortcut: divide 72 by your annual rate to estimate how many years it takes your money to double. At 8%, that's roughly nine years. Compound interest works for you in savings accounts, retirement funds and investments — but it works against you on credit card debt, where the same mechanics cause balances to balloon. Understanding compounding is the foundation of nearly every other financial decision, from choosing a savings account to planning retirement. The earlier you let it work, the less you have to save to reach the same goal.