📈 Compound Interest Calculator
See money grow over time with principal, rate, compounding.
Investment Growth Over Time
The chart below visually represents the growth of your investment year by year, highlighting the increasing impact of compound interest.
Understanding Compound Interest
Compound interest, often called "interest on interest," is the addition of interest to the principal sum of a loan or deposit. It means that you earn returns not only on your initial principal but also on the accumulated interest from previous periods. This allows your investment to grow at an accelerating rate over time.
For example, if you invest $1,000 at 5% annual interest compounded annually, after the first year you'll have $1,050. In the second year, you'll earn 5% on $1,050, not just the original $1,000. This "compounding" effect is powerful for long-term savings and investments.
Formula Components:
- Principal (P): The initial amount of money.
- Interest Rate (r): The annual interest rate (as a decimal).
- Compounding Frequency (n): How often interest is added (e.g., 12 for monthly).
- Time (t): The number of years.
The future value (A) of an investment with an initial principal (P), an annual interest rate (r), compounded n times per year, over t years is calculated as: A = P (1 + r/n)^(nt).
If there are regular monthly contributions (M), the formula becomes more complex, involving the future value of a series: A = P(1 + r/n)^(nt) + M * [((1 + r/n)^(nt) - 1) / (r/n)] (assuming contributions are made at the end of each period that aligns with compounding frequency, or adjusted r/n for monthly contributions if compounding is different).
Important Notes
- This calculator assumes a fixed interest rate and regular compounding periods.
- It does not account for taxes, fees, or inflation, which can affect the actual return.
- Monthly contributions are assumed to be made at the end of each month and are compounded according to the selected frequency.
- While this calculator can show how debt might grow if no payments are made (e.g., deferred student loans), for typical loan repayment scenarios (like mortgages or auto loans with regular payments), please use our dedicated Loan Payment Calculator.
- Results are estimates. Consult a financial advisor for personalized advice.