Compound Interest Calculator
See how your money can grow with the power of compound interest
Investment Details
Investment Growth
Initial Investment
$10,000.00
Total Contributions
$12,000.00
Future Value
$32,911.62
Growth Over Time
Year-by-Year Breakdown
| Year | Starting Balance | Contributions | Interest | Ending Balance |
|---|
About Compound Interest
What is Compound Interest?
Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It’s often called “interest on interest.”
The Power of Compounding
The more frequently interest is compounded, the greater your returns. This calculator shows how small regular contributions can significantly grow your investment over time.
Compound Interest Formula
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 = number of times interest is compounded per year
t = the number of years
PMT = monthly contribution amount
Compound Interest Formula & How to Use It
The compound interest formula is the foundation of long‑term investing. It calculates the future value of an investment when interest is reinvested, earning interest on interest. The full formula, including regular contributions, is:
Where:
A = future value (including contributions)
P = initial principal (lump sum)
r = annual nominal interest rate (as a decimal)
n = number of compounding periods per year
t = number of years
PMT = regular contribution per period (monthly in our calculator)
The first part, P(1 + r/n)nt, calculates the growth of the initial investment. The second part accounts for the series of regular contributions, each compounded from its deposit date.
📈 Why Compounding Frequency Matters
The value of n (compounding frequency) can significantly affect your returns. More frequent compounding (e.g., daily vs. annually) means interest is added to your balance sooner, allowing it to earn even more interest. For example, $10,000 at 7% over 10 years grows to $19,671.51 with annual compounding, but to $20,096.44 with daily compounding – a difference of $424.93.
💰 The Impact of Regular Contributions
Adding even small monthly contributions can dramatically increase your final balance. In our default example ($10,000 initial, 7% annual, 10 years, $100/month), the total contributed is $22,000 (principal + $12,000 contributions), but the future value reaches over $32,900. That’s nearly $10,900 in pure interest – the power of compounding at work!
❓ Frequently Asked Questions
Q: What is the difference between simple and compound interest?
Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus any accumulated interest, leading to exponential growth.
Q: How does compounding frequency affect my returns?
Higher frequency (daily, monthly) means interest is added more often, so your money grows faster. The effect is more pronounced with higher interest rates and longer time periods.
Q: Can I use this calculator for retirement planning?
Yes! It’s perfect for estimating the future value of retirement accounts like 401(k)s or IRAs, where you make regular contributions. Just remember that actual returns may vary.
Q: What if I want to calculate with different contribution frequencies?
Our calculator uses monthly contributions. For other intervals (quarterly, annually), you can convert by dividing the contribution amount appropriately. A future update may include more options.
Q: Does the formula assume contributions are made at the beginning or end of the period?
Our implementation assumes contributions are made at the beginning of each month (ordinary annuity due). This is typical for savings plans.
⚠️ Disclaimer
Finance ToolBajar’s Compound Interest Calculator is for educational and planning purposes only. It does not constitute financial advice. Actual investment returns may vary due to market conditions, fees, taxes, and other factors. Past performance does not guarantee future results. Always consult a qualified financial advisor before making investment decisions.
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