Compound Interest Calculator
Calculate how your investments grow over time with compound interest
What is a compound interest calculator?
A compound interest calculator projects how your money grows over time when interest is reinvested. It factors in your initial investment, regular contributions, interest rate, and compounding frequency to show your total future value, breaking down exactly how much comes from contributions versus earned interest.
Future Value
$106,639.02
After 10 years with monthly compounding
Total Contributions
$70,000.00
Total Interest Earned
$36,639.02
Year-by-Year Growth
| Year | Balance | Contributions | Interest |
|---|---|---|---|
| 1 | $16,919.19 | $16,000.00 | $919.19 |
| 2 | $24,338.58 | $22,000.00 | $2,338.58 |
| 3 | $32,294.31 | $28,000.00 | $4,294.31 |
| 4 | $40,825.16 | $34,000.00 | $6,825.16 |
| 5 | $49,972.70 | $40,000.00 | $9,972.70 |
How is compound interest calculated?
The compound interest formula calculates how an investment grows when earned interest is reinvested and compounded at regular intervals. With regular contributions, the formula combines principal growth and annuity future value.
Compound Interest Formula
Where A is the future value, P is the initial principal, r is the annual interest rate (as a decimal), n is the compounding frequency per year, t is the time in years, and PMT is the contribution per compounding period.
Variable Definitions
- A: Future value of the investment
- P: Initial principal (starting investment)
- r: Annual interest rate (decimal form)
- n: Number of compounding periods per year
- t: Time in years
- PMT: Contribution per compounding period
More frequent compounding (higher n) produces slightly greater returns because interest is calculated and added to the balance more often, creating more opportunities for interest-on-interest.
Frequently Asked Questions
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only earns on the original amount, compound interest creates exponential growth over time — often called 'interest on interest.'
More frequent compounding produces slightly higher returns because interest is calculated and added to the balance more often. Monthly compounding yields more than annual compounding for the same rate. However, the difference between monthly and daily compounding is minimal for most practical purposes.
The Rule of 72 is a quick estimation method for determining how long it takes an investment to double. Divide 72 by the annual interest rate to get the approximate number of years. For example, at 8% interest, your investment doubles in roughly 72 ÷ 8 = 9 years.
The ideal monthly investment depends on your financial goals, timeline, and budget. Even small regular contributions benefit enormously from compounding over long periods. A common guideline is to invest 15-20% of your income, but starting with any amount is better than waiting for the 'perfect' number.
Simple interest is calculated only on the original principal amount — it stays the same each period. Compound interest is calculated on the principal plus all previously earned interest, creating accelerating growth. Over long time horizons, compound interest produces dramatically higher returns than simple interest.
Yes, interest income is generally taxable in the United States. Interest earned in standard brokerage or savings accounts is taxed as ordinary income. Tax-advantaged accounts like IRAs and 401(k)s can defer or eliminate taxes on interest earnings, depending on the account type.