Compound Interest Calculator
Calculate how your money grows with compound interest over time
Calculate Compound Interest
How to Use This Calculator
- Enter your initial investment amount (principal)
- Set the annual interest rate
- Choose the investment time period
- Select how often interest compounds
- Click calculate to see the results
Compounding Frequency
Compound Interest Results
Enter your investment details to calculate compound interest
How to Use This Compound Interest Calculator
Step-by-Step Guide
- 1Enter your initial investment amount (principal)
- 2Add any additional monthly contributions you plan to make
- 3Enter the expected annual interest rate (as a percentage)
- 4Select how often interest compounds (daily, monthly, quarterly, annually)
- 5Choose your investment time period in years
- 6Click "Calculate" to see your projected returns and growth chart
What You'll Learn
- ✓Total value of your investment at the end of the period
- ✓Total interest earned from compound growth
- ✓Year-by-year breakdown of your investment growth
- ✓Impact of different compounding frequencies
- ✓How additional contributions affect your final balance
- ✓Visual growth chart showing compound interest over time
Frequently Asked Questions About Compound Interest
How accurate is this compound interest calculator?
Our compound interest calculator uses the standard compound interest formula and provides accurate projections based on your inputs. However, actual investment returns can vary due to market fluctuations, fees, taxes, and other factors. Use this as a planning tool and consider consulting with a financial advisor for investment decisions.
What's the difference between simple and compound interest?
Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any previously earned interest. Compound interest grows exponentially over time, making it much more powerful for long-term investments. For example, $1,000 at 5% simple interest earns $50 per year, while compound interest earns more each year as the balance grows.
How often should interest compound for maximum returns?
More frequent compounding generally results in higher returns, but the difference becomes smaller as frequency increases. Daily compounding typically provides the highest returns, followed by monthly, quarterly, and annual compounding. However, the practical difference between daily and monthly compounding is often minimal, and other factors like fees and investment performance matter more.
What's a realistic interest rate for long-term investments?
Historical stock market returns average around 7-10% annually, but this varies significantly by year and investment type. Conservative investments like bonds might return 2-4%, while growth stocks could return 8-12% or more. Consider your risk tolerance, investment timeline, and diversify your portfolio. Remember that past performance doesn't guarantee future results.
How much should I invest monthly to reach my goals?
Use the calculator in reverse: set your target amount and time period, then adjust the monthly contribution until you reach your goal. Start with what you can afford and increase contributions over time. Even small amounts can grow significantly with compound interest. For example, $100 monthly at 7% for 30 years grows to over $120,000.
Should I invest a lump sum or make regular contributions?
Both strategies can work, but regular contributions (dollar-cost averaging) help reduce risk by spreading investments over time. Lump sum investing can be more profitable if markets perform well, but regular contributions provide discipline and reduce the impact of market timing. Many successful investors use a combination of both strategies.
How do taxes and fees affect compound interest calculations?
Taxes and fees can significantly impact your actual returns. Investment fees reduce your effective return, while taxes on gains can reduce your final balance. Consider tax-advantaged accounts like superannuation, 401(k)s, or ISAs when available. Factor in management fees, trading costs, and tax implications when planning your investments.
What's the "Rule of 72" and how does it relate to compound interest?
The Rule of 72 is a quick way to estimate how long it takes for an investment to double: divide 72 by your annual interest rate. For example, at 6% interest, your money doubles in about 12 years (72 ÷ 6 = 12). This rule works well for interest rates between 6-10% and helps illustrate the power of compound interest over time.