Compound Interest Calculator
Model your long-term wealth growth with compound interest and monthly contributions.
The Power of Compound Interest
Compound interest is often called the “eighth wonder of the world.” Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on the principal plus the accumulated interest from previous periods. This creates a snowball effect that can significantly grow your wealth over time.
How Compound Interest Works
When you invest money, you earn interest. In the next period, you earn interest on your original money AND on the interest you just earned.
The formula for compound interest with additional contributions is:
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]
Where:
- A = The future value of the investment
- P = The principal investment amount
- r = The annual interest rate (decimal)
- n = The number of times interest is compounded per year
- t = The number of years the money is invested
- PMT = The monthly contribution amount
The Rule of 72
A quick way to estimate how long it will take for your money to double is the Rule of 72. Simply divide 72 by your annual interest rate. For example, at a 7% return, your money will double roughly every 10.3 years (72 / 7 = 10.28).
Keys to Growing Wealth
- Start Early: Time is the most critical factor in compound growth. Even small amounts saved in your 20s can far outperform larger amounts saved in your 40s.
- Be Consistent: Regular monthly contributions (as shown in our calculator) dramatically increase your final balance compared to a one-time investment.
- Reinvest Everything: To maximize compounding, ensure all dividends and interest payments are automatically reinvested back into the account.
- Watch the Fees: High management fees can “eat” your compound growth over decades. Look for low-cost index funds to keep more of your earnings.
Use This Calculator
Our compound interest calculator allows you to experiment with different scenarios. See how an extra $100 a month or a 1% difference in interest rate can change your financial future by hundreds of thousands of dollars over a 30-year period.