Calculate how your money grows over time with compound interest. Choose your compounding frequency and see detailed projections.
Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest, which only calculates interest on the principal amount, compound interest allows your money to grow exponentially over time.
When you invest money or deposit it in a savings account, you earn interest on your principal. With compound interest, that earned interest is added to your principal, and in the next period, you earn interest on the new, larger amount. This creates a snowball effect where your money grows faster over time.
The frequency of compounding significantly impacts your returns:
Interest is calculated and added to your principal every day. This provides the highest returns as interest compounds 365 times per year.
Interest compounds 12 times per year. Common in savings accounts and many investment products.
Interest compounds 4 times per year. Often used in bonds and some certificates of deposit.
Interest compounds once per year. Provides the lowest returns among these options but is still better than simple interest.
Time is the most powerful factor in compound interest. The longer your money compounds, the more dramatic the growth. Starting early, even with smaller amounts, can result in significantly larger returns than starting later with larger amounts. This is why financial advisors emphasize starting to save and invest as early as possible.
A = P(1 + r/n)^(nt)
Understanding compound interest helps you make better financial decisions:
Savings Accounts
Compare different savings accounts by looking at both interest rates and compounding frequency.
Investment Planning
Project how your investments will grow over time to plan for retirement or other financial goals.
Debt Management
Understand how compound interest works against you with credit card debt and loans.
Retirement Planning
Calculate how much you need to save regularly to reach your retirement goals.
Withdrawing interest or dividends instead of letting them compound
Focusing only on interest rates without considering compounding frequency
Starting too late and missing out on years of compound growth
Not accounting for inflation when calculating real returns
Ignoring fees and taxes that can reduce your effective returns
Calculate monthly mortgage payments and total interest
Calculate loan payments and interest costs
Project your savings growth over time
Calculate investment returns and growth
Calculate return on investment percentage
Plan your retirement savings and income