Compound Interest Calculator

How much will your money be worth when invested? This powerful tool will do all of the calculations required to calculate your returns and portfolio value over time.

• Tip: Compound interest's most powerful ally is time. Modify your time frame above to see what your money will be worth over a longer time frame.

  
  

  Important note on the compound interest calculator: Values displayed here are an estimation of real-world returns intended to provide general guidance. Returns from investments are typically more volatile than what is displayed here. The information displayed here isn't intended to be financial or legal advice. Refer to a professional advisor or accountant for information relevant to your specific situation.

Using this Calculator

This interactive graph and calculator is intended to provide you a visualization of the power of compound interest. To interact with the graph, hover or scroll over it to reveal additional data. The area under the graph highlighted in blue represents the total amount you have invested up until the point indicated in the top left corner of the graph. The area highlighted in orange represents the total value of your portfolio. The difference between the two represents the total gain within your portfolio! Exciting!

What is Compound Interest?

Compound interest is the process of earning interest not only on your original investment but also on the interest you’ve previously earned. Over time, this creates a snowball effect where your money grows faster and faster.

In simple terms:

You earn interest on your initial amount + any interest you’ve already earned.

This is different from simple interest, where you only earn interest on your original amount. With compound interest, each compounding period adds to your balance, and future interest calculations are based on this larger amount.

For example:

Year 1: You invest $1,000 at 5% annual interest. You earn $50 in interest, so your total is $1,050.

Year 2: You now earn 5% on $1,050 (50 dollars more than the previous year) giving you $52.50 in interest.

Year 3 and beyond: The process repeats, and your earnings grow faster with each period.

This is why Albert Einstein allegedly called compound interest “the eighth wonder of the world.” The earlier you start and the more often your interest compounds, the more powerful this effect becomes.

Compound Interest Formula

The formula to calculate compound interest is T=I(1+r/n)^nt.

T = Total amount at the end of the given time.

I = Initial amount invested.

r = Rate of return.

n = frequency that interest is compounded in the given time frame.

t = time frame.

Example: Calculating Compound Interest Step-by-Step

Let’s say you invest $10,000 at an annual interest rate of 5%, compounded quarterly (4 times per year) for 10 years. We’ll use the formula we outlined above.

Step 1: Plug in the numbers

T = 10,000 × (1 + 0.05 ÷ 4)^(4 × 10)

Step 2: Simplify

T = 10,000 × (1 + 0.0125)^(40)

T = 10,000 × (1.0125)^40

Step 3: Calculate

T ≈ 10,000 × 1.643619

T ≈ $16,436.19

Result: After 10 years, your investment grows to $16,436.19, meaning you’ve earned $6,436.19 in interest.

Compound Interest vs. Simple Interest

Feature	Simple Interest	Compound Interest
Calculation	Based only on the initial principal	Based on principal + accumulated interest
Growth Pattern	Linear	Exponential
Interest Earned	Same every period	Increases every period
Best For	Short-term loans, quick calculations	Long-term investments, savings accounts
Example Over 10 Years (5%, $10,000)	$15,000 total	$16,386 total

While both compound interest and simple interest help your money grow, the way they’re calculated is very different, and that difference can have a huge impact over time.

Simple Interest

Interest is calculated only on your original amount (principal).

Growth is linear, meaning you earn the same amount of interest each period.

Compound Interest

Interest is calculated on your principal + any interest already earned.

Growth is exponential - your money grows faster as time goes on.

Why It Matters

For short-term borrowing, simple interest might work fine. But for long-term investing, compound interest is far more powerful. The longer your money stays invested, and the more often it compounds, the greater the difference between the two.

Tips for Maximizing Compound Interest

Compound interest works best when you give it time to grow. The earlier you start and the more you contribute, the more powerful the compounding effect becomes. Here are some strategies to make the most of it:

1. Start Early
   Time is your biggest ally. Even small amounts invested today can grow substantially over decades thanks to compounding.

2. Contribute Regularly
   Make consistent contributions to your investment or savings account. Regular deposits keep your balance growing and accelerate compounding.

3. Reinvest Your Earnings
   Instead of withdrawing interest or dividends, reinvest them. This allows your earnings to generate their own earnings.

4. Choose Accounts With Frequent Compounding
   Daily or monthly compounding will grow your money faster than annual compounding.

5. Seek Higher Returns—Responsibly
   A higher interest rate can dramatically increase your total over time. But always balance higher returns with your risk tolerance.

6. Avoid Unnecessary Withdrawals
   Every time you take money out, you reduce the amount that can compound. Keep withdrawals to a minimum to maximize growth.

7. Use Tax-Advantaged Accounts
   Accounts like IRAs, 401(k)s, or other retirement plans let your investments grow without immediate tax drag, accelerating compounding over time.

   
   

Frequently Asked Questions (FAQs) About Compound Interest

What is the formula for compound interest?

The standard formula is:
T = I(1 + r/n)^(n × t)
Where:

• T = Total amount after time t
• I = Initial investment
• r = Annual interest rate (in decimal form)
• n = Number of compounding periods per year
• t = Time in years

How is compound interest different from simple interest?

Simple interest is calculated only on your initial principal, while compound interest is calculated on both your principal and any interest you’ve already earned. Over time, this makes compound interest much more powerful.

What is the best compounding frequency?

The more often interest compounds, the faster your money will grow. Daily compounding is typically the most beneficial, followed by monthly, quarterly, and annual compounding.

Can compound interest work against me?

Yes. Debt with compound interest, like credit cards, can grow quickly if you don’t pay it off in full. In these cases, compounding increases the total you owe.

How can I maximize my compound interest gains?

Start as early as possible, contribute regularly, reinvest earnings, choose accounts with higher interest rates and frequent compounding, and avoid withdrawing funds unnecessarily.

How does inflation affect compound interest?

Inflation reduces the purchasing power of your returns. Even if your investments grow through compounding, you’ll want to ensure your rate of return outpaces inflation.