Compound Interest Calculator

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which only applies to the principal), compound interest accelerates growth because each period's interest earns interest in the next period. The formula for a lump sum is FV = P x (1 + r/n)^(n*t), where P is the principal, r is the annual rate, n is the compounding frequency, and t is the number of years.

Monthly contributions dramatically accelerate wealth building because each deposit starts compounding immediately. A $10,000 initial investment at 8% grows to about $21,600 in 10 years. Add $500 per month and the total reaches roughly $113,000. The contributions themselves total $70,000, but compounding adds over $43,000 in interest. Regular investing consistently outperforms a single lump sum for most people.

The more frequently interest compounds, the faster your money grows. Annual compounding applies interest once a year. Monthly compounding applies a smaller amount twelve times, but each month's interest earns interest in subsequent months. Daily compounding takes this further. The effective annual rate rises with frequency: 8% compounded annually stays 8%, but compounded daily it becomes 8.33%. Over long periods, the difference adds up to thousands of dollars.

The Rule of 72 is a quick mental-math shortcut to estimate how long it takes for an investment to double. Divide 72 by the annual interest rate to get the approximate doubling time in years. At 8% annual return, your money doubles in roughly 9 years. At 12%, it doubles in about 6 years. We display the exact doubling time based on your chosen compounding frequency, which is more precise than the Rule of 72 approximation.

Simple interest is calculated only on the original principal: Interest = P x r x t. Compound interest is calculated on the principal plus all accumulated interest. On a $10,000 investment at 8% for 20 years, simple interest yields $26,000 while compound interest yields about $46,610. The longer the time horizon, the larger the gap becomes because compound interest grows exponentially while simple interest grows linearly.

The effective annual rate (EAR) is the true annual return after accounting for compounding frequency. A stated 8% rate compounded monthly has an EAR of 8.30%, meaning you actually earn 8.30% per year, not 8%. The EAR lets you compare investments with different compounding frequencies on equal footing. We calculate and display the EAR automatically based on your chosen frequency.

Inflation erodes purchasing power over time. If your investment grows at 8% annually but inflation runs at 3%, your real (inflation-adjusted) return is closer to 5%. Over 20 years, $10,000 growing at 8% nominally reaches about $46,600, but in today's purchasing power (adjusted for 3% inflation) it is worth roughly $25,800. We show the inflation-adjusted value so you can see what your future corpus actually buys. Adjust the inflation slider to match your expectations.

Compounding is exponential, not linear. The bulk of the growth happens in the later years, but only if you give it enough time. Someone who invests $5,000 at 8% at age 25 will have about $108,600 at age 65. If they wait until age 35, the same investment grows to only $50,300. That 10-year head start nearly doubles the final amount because each year of compounding multiplies all the growth that came before it.

Fees and taxes reduce the effective rate at which your money compounds. A 1% annual management fee on an 8% return reduces your effective growth rate to 7%. Over 30 years on a $10,000 investment, that 1% fee costs you roughly $43,000 in lost growth. Taxes on interest or capital gains have a similar drag effect. When comparing investment options, subtract fees from the interest rate to model the net return in this calculator.

Nominal return is the raw percentage growth of your investment before adjusting for inflation. Real return is the nominal return minus the inflation rate, representing actual purchasing power gained. If your portfolio returns 10% in a year when inflation is 4%, your nominal return is 10% but your real return is approximately 6%. Use the inflation slider to see both nominal and real future values side by side.