Compound Interest Calculator

Calculate how your investments grow over time with compound interest. See the power of compounding and plan your financial future.

The Compound Interest Formula

A = P(1 + r/n)nt
A = Final amount (principal + interest)
P = Principal (initial investment)
r = Annual interest rate (as decimal)
n = Number of times compounded per year
t = Time in years

How It Works

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. This creates exponential growth over time.

Year 1 $1,000 + $50 = $1,050
Year 2 $1,050 + $52.50 = $1,102.50
Year 3 $1,102.50 + $55.13 = $1,157.63

Starting with $1,000 at 5% annual interest, you earn interest on interest!

Calculate Compound Interest

Compound Interest Examples

Example 1: Basic Savings Account

Given: You deposit $5,000 in a savings account earning 4% annual interest, compounded monthly, for 3 years.

Solution:

P = $5,000, r = 0.04, n = 12, t = 3

A = 5000 × (1 + 0.04/12)12×3

A = 5000 × (1.00333)36

A = 5000 × 1.1273 = $5,636.45

Interest earned: $636.45

Example 2: Long-term Investment

Given: Invest $10,000 at 7% annual interest, compounded quarterly, for 20 years.

Solution:

P = $10,000, r = 0.07, n = 4, t = 20

A = 10000 × (1 + 0.07/4)4×20

A = 10000 × (1.0175)80

A = 10000 × 4.0246 = $40,246.37

Interest earned: $30,246.37

Example 3: Retirement Planning

Given: Starting at age 25, you invest $200/month at 8% annual interest, compounded monthly, until age 65.

Solution: Using future value of annuity formula:

Monthly contribution = $200, r = 0.08, n = 12, t = 40

FV = 200 × [(1 + 0.08/12)480 - 1] / (0.08/12)

FV = 200 × [25.39 - 1] / 0.00667

FV = $702,856.25

Total contributions: $96,000 | Interest earned: $606,856.25

Example 4: Daily Compounding

Given: $2,500 invested at 5% annual interest, compounded daily, for 5 years.

Solution:

P = $2,500, r = 0.05, n = 365, t = 5

A = 2500 × (1 + 0.05/365)365×5

A = 2500 × (1.000137)1825

A = 2500 × 1.2840 = $3,210.06

Interest earned: $710.06

Example 5: Comparing Frequencies

Given: $10,000 at 6% for 10 years - compare annual vs. daily compounding.

Annual: A = 10000 × (1.06)10 = $17,908.48

Daily: A = 10000 × (1 + 0.06/365)3650 = $18,220.29

Difference: $311.81 more with daily compounding

Higher compounding frequency = slightly more interest earned

About Compound Interest

What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. Often described as "interest on interest," it makes your money grow faster than simple interest.

The Power of Compounding

Albert Einstein reportedly called compound interest the "eighth wonder of the world." The longer you let your money compound, the more dramatic the growth becomes:

  • Starting early is key - time is your greatest ally
  • Higher compounding frequency yields slightly more interest
  • Even small differences in interest rates compound significantly over time

Common Compounding Frequencies

  • Annually (n=1): Interest calculated once per year
  • Semi-annually (n=2): Interest calculated twice per year
  • Quarterly (n=4): Interest calculated four times per year
  • Monthly (n=12): Interest calculated monthly
  • Daily (n=365): Interest calculated every day

Compound Interest vs. Simple Interest

Simple interest is calculated only on the principal amount. Compound interest includes interest on previously earned interest, resulting in exponential growth rather than linear growth.